The decline of American capitalism

From the collection of the

^ m

o Prejinger
V Jjibrary

t

p

San Francisco, California
2006

Also by Lewis Corey:
THE HOUSE OF MORGAN

LEWIS COREY

The Decline of
American Capitalism

COVICI-FRIEDE-Pl/BL/5//£;i?5
NEW YORK

COPYRIGHT, 1934, BY LEWIS COREY
ALL RIGHTS RESERVED. NO PART OF THIS BOOK MAY BE REPRO-
DUCED IN ANY FORM WITHOUT PERMISSION IN WRITING FROM
THE PUBLISHER, EXCEPT BY A REVIEWER WHO MAY QUOTE BRIEF
PASSAGES IN A REVIEW TO BE PRINTED IN A MAGAZINE OR

NEWSPAPER.

DESIGN : ERNST REICHL

MANUFACTURED IN THE UNITED STATES OF

AMERICA BY H. WOLFF, NEW YORK

TO

Esther

WHOSE FAITH IS PART
OF THIS BOOK

Digitized by the Internet Archive

in 2006 with funding from

IVIicrosoft Corporation

http://www.archive.org/details/declineofamericaOOcorerich

Contents

PART one: the AMERICAN CRISIS

Introductory ii

I. Ballyhoo: The New Capitalism 14

II. The Meaning o£ Prosperity 24

III. The Decline o£ Capitalism: General Survey 41

PART TWO : PROSPERITY, PROFITS, AND WAGES

IV. Profits and Prosperity 63
V. The Policy of High Wages 76

VI. Profits and Wages: State Capitalism 94

PART THREE :

CONTRADICTIONS OF ACCUMULATION

VII. Accumulation and the Composition of Capital 113

VIII. The Fall in the Rate of Profit 118

IX. Multiplying Contradictions and Capitalist Decline 130

PART four: the ANTAGONISM
BETWEEN PRODUCTION AND CONSUMPTION

X. Economic and Class Contradictions 151

XI. Excess Capacity, Competition, and Speculation 160

XII. The Onset of Crisis and Depression 180

XIII. Production and Consumption: Capitalist Decline 193

PART FIVE :

UNEMPLOYMENT, TECHNOLOGY, AND CAPITALISM

XIV. Prosperity and Unemployment 225
XV. Disemployment and Surplus Population 241

XVI. The Economics of Technology 260

viii Contents

PART SIX :

CONCENTRATION OF INCOME AND WEALTH

XVII. Class Distribution of Income 305

XVIII. The Multiplication o£ Stockholders 322

XIX. Class Distribution of Wealth 341

PART SEVEN I

MONOPOLY CAPITALISM AND IMPERIALISM

XX. Trusts: Concentration and Combination 373

XXI. Monopoly and Finance Capital 395

XXII. The Dynamics of Imperialism 416

PART eight: the struggle for power

XXIII. Prosperity and Capitalist Decline 460

XXIV. State Capitalism, Planning, and Fascism 489
XXV. The Crisis of the American Dream 515

XXVI. The American Revolution 541

Notes: 577 Bibliography: 597 Index: 607

Graphs

I. Major Economic Trends — 1896-1919 35

II. Prosperity in Action — 1923—29 69

III. The Share of Labor in Prosperity — 1919-29 81

IV. Capital and Labor in Depression 91
V. Changes in the Composition of Capital 115

VI. The Fall in the Rate of Profit 125

VII. Contradictions in Production and Consumption 155

VIII. The Stakes of Speculation — 1923-29 175

IX. The Basic Factors in Capitalist Production 201

X. The Creation of Disemployment 231

XI. The Upward Trend of Unemployment — 1900-33 245

XII. Production, Wages, and Capital Claims 289

XIII. Class Distribution of Income — 1920-29 311

XIV. Class Distribution of Stock Ownership — 1928 331
XV. Class Distribution of Wealth— 1928 349

XVI. Concentration and Centralization — 1923-29 385

XVII. The Dynamics of Finance Capital 413

XVIII. American Imperialism in Action 441

XIX. American Class Divisions — 1 870-1929 563

PART ONE
The American Crisis

Introductory

JyL MERicAN life moves and changes swiftly. Government and industry
resort to new and desperate measures. Traditions break down. Ac-
cepted truths are challenged or repudiated. The present is dark, the
future uncertain and threatening. There is an accumulating pressure
of underlying ferments and forces which create social explosions.
Classes mobilize: ideas clash. These are all indications of a crisis.

One aspect of the American crisis arose out of the depression and
the efiForts to overcome it. While ballyhoo promises a new and ever-
lasting prosperity, a new world, millions hope merely for a job, any
sort of job; for an income, any sort of income to ward off charity.
Millions must accept charity, whether direct or in the form of "relief
work." The mobilization of government to "war upon depression"
aroused hopes which were meagrely realized.

Another and more fundamental aspect of the crisis involves the
decline of American capitalism. It is a crisis of the economic order
itself. This is evident in the inability to restore prosperity on any sub-
stantial scale. The future is one of incomplete recovery: of economic
decline, mass disemployment (including millions in clerical and pro-
fessional occupations), lower standards of living, and war. Every de-
pression is in a sense a crisis of capitalism. But this depression represents
the development of a fundamental, permanent crisis in the economic
and social relations of American capitalism. Only a deep-going crisis
could force government and industry to adopt measures which were
formerly condemned as opposed to economic progress. The interven-
tion of government in industry is, of course, nothing new: the devel-
opment of capitalism has been accompanied by growing government
aid to industry. But such aid was limited in scope. It was, economically,
an expression of the upswing of capitalism, of the necessity of gov-
ernment action to "regulate" the developing relations of trustified
capitalism. But to-day government intervention is on an unprece-
dented scale. Its economics and politics are an expression of the decline
of capitalism, of the necessity of government action to prop up the
sagging foundations of the economic order. The avowed aim is to
insure prosperity, formerly achieved by the working of "free" capi-

II

12 The Decline of American Capitalism

talist enterprise. The real need is for increasing use of government to
manipulate economic forces, for state capitalism, because capitalist
industry is unable to junction as of old. The forms of state capitalism
may change, but the need remains, with fascism looming ahead. As
capitalism declines, the state must intervene more drastically to aid
industry and suppress labor. It is the death of the old world, not the
birth of the new.

The depression which set in after 1929 was the worst economic dis-
aster in American history. It was aggravated by the acute world crisis,
a major catastrophe of capitalism. The downward movement of pro-
duction began in July, 1929 and continued until March, 1933 — three
years and nine months. No previous decline was as long or as steep,
not even in the great depressions of 1873 and 1893. In the depression
of 1920-22 the downward movement of production continued ten
months, and two years completed the swing from recession to renewed
prosperity. Unemployment, including clerical and professional work-
ers, rose in 1933 to 17,250,000; 14,250,000 wage-workers or nearly 50%
were unemployed, compared with 30% in 1921. Part-time employment
was also greater. And the situation was not very much improved, for
the depression did not end in March, 1933. The revival, largely because
of its inflationary and speculative character, did not lead to recovery.
There was the ominous spectacle of a minor but complete cycle within
a few months: revival in April, recovery in May, and "boom" pros-
perity in June; as production and profits outstripped wages and con-
sumption, "prosperity" broke down in July, accompanied by a crash
in the stock market; recession and depression again, and an intensifica-
tion of the crisis.

These recurrent breakdowns of prosperity are a typical, damnable
spectacle of capitalist civilization. Men, women, and children starve
or agonizingly approach starvation while wheat and corn rot, vege-
tables perish, milk and coffee are destroyed. The wheels of industry
slow down while millions of workers eager to work are condemned
to unemployment. Wants go unsatisfied on an enormous and oppres-
sive scale, although all the means exist to satisfy the wants. (Depres-
sion magnifies the condition prevailing even in periods of the most
flourishing prosperity, when there are also millions unemployed; their
wants and many wants even of employed workers are unsatisfied.)
This monstrous state of affairs was unknown to the people of pre-
capitalist civilizations: they knew want as the result of scarcity, nat-
ural calamity, or war, and the torment of labor lay in its severity.
Capitalist civilization introduced a new form of want, want in the

Introductory 13

midst o£ abundance; a new torment o£ labor, the torment of workers
deprived of work while there is an abundance of the means and
objectives of working. Our ancestors would have considered the situa-
tion idiotic; it is considered idiotic to-day by the non-capitalist, develop-
ing socialist civilization of the Soviet Union.

After every depression the cry has gone up, "It can never happen
again!" But it did happen again, and will. The United States experi-
enced, from 1790 to 1925, one year of depression for every one and
one-half years of prosperity.^ Cyclical crises and breakdowns are inher-
ent in capitalist production : depression is as characteristic as prosperity
and nearly as frequent.

But this depression is more than the usual cyclical breakdown. Its
duration, severity, and specific character are determined by non-cyclical
factors of economic decline. It is not simply that another depression
is inevitable after another short period of prosperity — although that
in itself is enough to condemn capitalism, which must repeat the
calamities of economic breakdown, mass unemployment, and mass
starvation. Capitalism has survived many depressions: they have, in
fact, been the starting points of new upswings of prosperity. This
crisis of American capitalism involves two new developments of major
historical importance:

In previous depressions economic forces were always strong enough
to start and complete a recovery, but recovery now seems almost
indefinitely postponed. Government intervenes to hasten the recovery,
which is nursed and coddled and kept alive with all sorts of stimu-
lants, government financial aid, and jabs of the inflation needle — an
ominous contrast to the lusty capitalism of old!

Unlike former experience, this depression cannot end in any real
upswing of prosperity, because cyclical recovery and prosperity are
now necessarily limited by the pressure of capitalist decline, which
involves exhaustion of the long-time factors of economic expansion.
These are the critical developments which underlay the adoption of
the National Industrial Recovery Act, of state capitalism. The captains
of industry and finance, some say, have proven their incapacity: let
the government act! But the incapacity is an old story: in the past it
did not prevent the revival of prosperity, because capitalism was on
the upswing, a progressive economic force. If the government must
act now, must hand-feed industry, it is because capitalism is in crisis
as a result of decline and decay, of the exhaustion of its progressive
economic force.

CHAPTER I

Ballyhoo: The New Capitalism

JL HE acute nature of the American crisis appears in the failure of the
desperate resort to more drastic state intervention in industry — in the
failure of the National Industrial Recovery Act and its creations. It
had to fail. For in essentials, in spite of differences in institutional
forms, the Act merely introduced measures of state capitalism which
have been tried in Europe and have not restored prosperity there. Yet
Niraism was greeted as another "new capitaHsm," the beginnings of
a new era in American civilization. Consider a few of the magnificent
claims:

Senator Capper: "The changes are revolutionary." . » . H. I. Har-
riman, president. Chamber of Commerce of the United States: "A
new business dispensation; holds out the promise of a better day."
... A speaker at a convention of the Advertising Federation of
America: "Marks the threshold of a new era." . . . Nelson B. Gaskill,
president. Lead Pencil Institute and former member of the Federal
Trade Commission: "The beginning of a new epoch; a systematized
democracy." . . . Mrs. Laura W. McMullen, chairman, international
relations department of the General Federation of Women's Clubs:
"An economic revolution, in the course of which the institution of
private property is being quietly undermined." . . . General Hugh
Johnson, NRA Administrator: "A new era; high level of prosperity."
. . . The New York World-Telegram: "A revolution to bring order
to industry and security to the masses, to redistribute wealth, to fit
the wage system into the power age." . . . Oswald Garrison Villard,
liberal of the old school : "The revolution which has taken place in so
short a time; taint taken off socialism." . . . William Green, presi-
dent, American Federation of Labor: "Planning for national welfare;
sound fundamental philosophy of the relationship between govern-
ment and industry; serves the welfare of investors of capital and
producing workers." . . . American Federation of Labor, Current
Survey of Business: "Points the way to a new order." . . . Frances
Perkins, Secretary of Labor: "We may find we have built up a new
kind of civilization; a blessing beyond anything we in our genera-
tion have ever dared to dream of." . . . Rexford Guy Tugwell, Assist-

14

Ballyhoo: The New Capitalism 15

ant Secretary o£ Agriculture: "To save our institutions from unlim-
ited greed, and to turn the results of common efforts toward more
general benefits: enlarged incomes for common people, greater leisure,
security from risk." . . . Leonard Rogers, an interpreter of current
events: "The American compromise w^ith communism."^

These claims, already shattered by events, are more than mere
demagogic incitation. They are part of an ideology in the making, by
means of which the decline of capitalism is masked and the way
prepared for the ideological subjugation of the masses. At its basis is
the conception of a "new capitalism." This conception is recurrent.
Any new stage or twist in the development of capitaHsm is seized
upon by apologists, who proclaim that the economic order is being
transformed. The conception of the "new capitalism" is a form of
struggle against the workers and farmers, the clerical and professional
workers.

After the depression of 1873-79, marked in its later stages by aggres-
sive labor struggles, a considerable ballyhoo arose about profit-shar-
ing and the "partnership" of labor and capital. One economist,
echoing others, spoke of "a new regime of production and distribu-
tion," of an irresistible and continuous upward movement of wages,
mass consumption, and standards of living, which would result in
"the end of human poverty."^ Four years later the prophecy was
answered by the depression of 1893-97, and by the following seventeen
years during which wages, mass consumption, and standards of living
were practically stationary. . . .

The immediate parentage of the NRA ballyhoo was the ballyhoo of
prosperity which flourished in 1923-29, and ended in the most disas-
trous of all depressions. It is important to recall this fact, not only
because that prosperity is now mocked by depression, but because all
its essential claims reappear in the "new capitalism" of the NRA.

The pre-1929 ballyhoo of prosperity, which expressed the "Golden
Age" of American capitalism, had as its basic claim the old concept
of "a new regime of production and consumption," thus restated by
one bourgeois economist:

"Increasing productivity of labor and industry, advancing wages,
higher living standards and greater consuming or purchasing power
rapidly became the avowed policy and practical program of American
industry ... a new industrial revolution which is the marvel of the
civilized world." *

Another economist said: "A new principle works: consumption

i6 The Decline of American Capitalism

finances production. The more wealth is consumed, the more it will
increase. In this country the demonstration o£ that idea occurred. It is
the American contribution to economic experience."*

American capitalism, the prophets insisted, accepted the fact that
prosperity depends upon mass consumption, and, consequently, upon
increasingly higher wages. It was heady wine, this flattery of the
capitahsts; they began to believe in the ballyhoo and millionaires
gravely prophesied the end of poverty. . . . Charles E. Mitchell, presi-
dent. National City Bank of New York : "A revolution in industry has
been taking place that is raising all classes of the population to a more
equal participation in the fruits of industry, and thus, by the natural
operation of economic law, bringing to a nearer realization the dreams
of those Utopians who looked to the day when poverty would be
banished." . . . James H. Rand, president, Remington-Rand, Incor-
porated: "The economic revolution of the 1920's will appear as vital
as the industrial revolution in England and it will likewise mark the
beginnings of a new era." . . . Andrew W. Mellon, Secretary of the
Treasury and a powerful financial capitaHst: "America has adjusted
herself to the economic laws of the new industrial era, and she has
evolved an industrial organization which can maintain itself not only
because it is efficient, but because it is bringing about a greater dif-
fusion of prosperity among all classes." . . . Melvin A. Traylor, presi-
dent, Continental National Bank of Chicago and the American Bank-
ers Association: "We need not fear a recurrence of conditions that
will plunge the nation into the depths of the more violent financial
panics such as have occurred in the past." (This was in 1927, when a
minor cyclical depression warned of the greater disaster to come.)
. . . E. A. Filene, president, W. Filene and Sons Company: "What
the socialists dreamed of the new capitalism has made a reality, but
not by their methods. The ever-present human desire for greater total
profits will lead to the adoption of the new principles." . . . Haley
Fiske, president. Metropolitan Life Insurance Company: "Here is a
new business era. The glory of wealth fades. Extent of power fades.
What does remain here and throughout eternity is that every man
try his best in serving God to serve well his fellowmen." ^

Captains of industry and finance appear Jovelike in prosperity and
bewildered in depression, but at no time do they really understand
the movement of the economic forces they exploit. Their pre-1929
invocations to the "new era" expressed sheer misunderstanding; but

Ballyhoo: The New Capitalism 17

they also expressed, i£ partly unconsciously, the defensive, self-justify-
ing ideology of predatory capitalism.*

The prosperity ballyhoo reached its crescendo in a book, Ma\e
Everybody Rich — Industry's New Goal, published a few months before
the breakdown of prosperity in 1929. It is a curiosity of economic lit-
erature. The theme was this:

"The real industrial leaders of present-day America do not need to
be told that the goal of industry is to make everybody rich. It was they
who discovered the fact . . . who discovered the economic necessity
of high wages. . . . Not merely will prosperity be stabilized, but the
rule of class will for the first time in human history utterly disappear." ^

Within a few months industry changed its "goal" and began to
make everybody poor, an undertaking crowned with infinitely greater
success. One of the two authors of Make Everybody Rich, Benjamin

* The invocations to the "new era" were also profitable. Among other successful
exploiters was True Story, a magazine of highly sexy stories deodorized with moral
platitudes and reached a circulation of over 2,000,000. At first True Story was used
only by the cheaper class of mail-order advertisers. An advertising promotion story was
necessary to "sell" the magazine to the big national advertisers. So True Story launched
a promotion campaign, emphasizing that its readers were wage-earners, that wage-
earner families constitute 86% of America, and that the income of wage-earners had
increased enormously. "For the first time in history," True Story informed advertisers,
"the wage-earner is a prospect for advertised goods. He is the New Market that may
make or break to-morrow's merchandising leaders." The climax of the campaign was
a series of full-page advertisements in the New York Times (some of them appeared
in the issues of May 21, June 25, October 14, and December 9, 1929). Here are a few
gems:

"The economic history of the past ten years has been startling. The volunteering of
bigger pay and shorter hours, in order that labor might have the money to buy and
the leisure to enjoy the things that it helped to make, has virtually ended a capital-
labor war which has been going on now for upward of three hundred years. And the
opportunity now offered to labor to own an interest in the concerns in which it works
has opened up an experiment in equality that has never been known before in the
history of civilization.

"In making labor co-partner in your efforts and your enterprise, sharing your profits
and your dreams with so little to be gained on your part and so much to be lost, you
have probably taken the greatest forward step iri human conduct that the world has
ever known.

"To-day labor is buying over 65% in dollar volume of the things it helps to make.
... It is the freedom from care with which they are buying, the freedom from worry
in their eyes, the freedom from fear in their shoulder blades."

It worked: True Story made millions in profits. But in spite of the imposing array of
"economic" arguments and statistics, the campaign was based on distortions. Most of
True Story's readers were not wage-earners; 86% of America was not composed of
wage-earners, and they did not buy "over 65%" of consumption goods; the rise in
wage-earner income was grossly exaggerated.

i8 The Decline of American Capitalism

A. Javits, has since been chanting the praises of the NRA in the same
millennial terms he used to invoke prosperity everlasting. . . .

In addition to increasingly higher wages and mass consumption, the
pre-1929 "new capitalism" claimed that it was introducing "industrial
democracy." In 1924, Herbert Hoover spoke of "the great increase in
ownership of industries by their employees and customers," and of
"forces slowly moving toward some sort of industrial democracy." ^
Arthur Williams, vice-president of the New York Edison Company,
a part of the electric power oligarchy under control of the House of
Morgan, insisted that wage- workers were becoming capitalists:

"As a result of a gradual economic revolution we are beginning to
see that every worker is a potential capitalist. Wealth is not only in-
creasing at a rapid rate, but wages are rising. There are at least three
kinds of evidence which indicate roughly the extent to which workers
are becoming capitalists: the rapid growth of savings deposits, the
investment by workers in shares of corporations, and the growth of
labor banks." ^

These ideas were widely spread and believed and were echoed at
the 1925 convention of the American Federation of Labor by Spencer
Miller, director of the Workers Education Bureau. Miller maintained
that "so significant is this whole economic change that it has been
properly characterized as an economic revolution by students of our
economic life." Out of this conception arose the theory of "trade union
capitalism," whose basic assumption was that the "higher strategy of
American labor" is "based upon the solid ground of capital owner-
ship." ® This "capital ownership" was to be mobilized by labor banks,
which the Grand Chief of the Brotherhood of Locomotive Engineers
considered the "American answer to Marx and Lenin." ^° The banks
are now a mass of ruins. . . .

The master mind of the "new capitalism" was Thomas Nixon Car-
ver, professor of economics and major prophet of prosperity. His book.
The Present Economic Revolution in the United States, originated all
the assumptions of the pre-1929 "new capitalism." It is another curi-
osity of economic literature, a fantastic combination of misleading
statistics, apologetic economics, slipshod sociology, and rationalized
prejudices. After smugly declaring that "to be alive to-day, in this
country, and to remember the years from 1870 to 1920 is to awake
from a nightmare . . . [no more] slums and socialist agitators, blatant
demagogues and social legislation," Carver opened the case for the
"new capitalism" with a distortion of history:

"The great war produced a number of political revolutions in Eu-

Ballyhoo: The New Capitalism 19

rope. It has not yet produced an economic revolution. The only eco-
nomic revolution now under w^ay is going on in the United States.
It is a revolution that is to v^ipe out the distinction betv^^een laborers
and capitalists by making laborers their own capitalists and by com-
pelling most capitalists to become laborers o£ one kind or another,
because not many of them will be able to live on the returns from
capital. This is something new in the history of the world." ^^

Not even, Carver insisted, was there an economic revolution in
Soviet Russia, where the working class expropriated the capitalists
and landowners. Carver was one of the bourgeois scholars who
greeted the New Economic Policy in Russia as a "reversion to capi-
talism," the final proof of the bankruptcy of Marxism. They dismissed
as rationalization Lenin's argument that the new policy was merely
a retreat to reconstitute forces for a new offensive. Yet in a few years
the Soviet Union unloosed another offensive against capitalism and
systematically began building the economic basis of socialism. Carver's
American "revolution" led to the most appalling of cyclical break-
downs and economic decline, the Russian revolution leads to economic
advance and socialism — a trifling difference!

Blind, as only the scholar become ballyhoo-maker can be, to eco-
nomic reality. Carver painted a glowing picture of the American
revolution :

"Instead of the concentration of wealth, we are now witnessing its
diffusion; but the old tirades against plutocracy are still repeated. . . .
Instead of low wages for the manual trades, we are now having high
wages; and yet the old phraseology, including such terms as wage
slavery, still has a certain vogue. . . . Instead of the laborer being in
a position of dependence, he is now rapidly attaining a position of
independence. . . . Laborers are becoming capitalists. We are now
approaching equality of prosperity more rapidly than people realize.
. . . Neither state sociaUsm, guild socialism, sovietism, nor the or-
dinary cooperative society presents a plan of organization so well
suited to the needs of the workers who desire to own their own plants
as does the joint-stock corporation. . . . The full development of the
so-called capitalist system will not be reached until practically every-
one has become a capitalist, that is, an owner or part owner of some
of the instruments of production. ... It is just as possible to realize
equality under capitalism as under any other system." ^^

Is it any wonder that the capitalists, as they scooped in the profits
of industry and speculation, began to believe they were the saviors
of mankind? . . .

20 The Decline of American Capitalism

Another aspect of the pre-1929 mythology of prosperity was the
theory that cyclical fluctuations were now measurably under control.
There were to be no more alternations of prosperity and depression, no
more hard times— prosperity would be everlasting! (Similar claims
were made for the "planful" system of "controls" instituted by the
National Industrial Recovery Act.) Among the exponents of the
theory of everlasting prosperity were the members of the President's
Committee on Recent Economic Changes, including Owen D. Young,
Daniel Willard, John J. Raskob, and Clarence M. Woolley, identified
with corporations under the control or influence of the House of
Morgan, and William Green, president of the American Federation
of Labor. In its report, issued a few months before the breakdown of
prosperity in ig2g, the Committee said:

"Control of the economic organism is increasingly evident. . . .
Once an intermittent starting and stopping of production-consumption
was characteristic of the economic situation. It was jerky and unpre-
dictable, and overproduction was followed by a pause for consumption
to catch up. For the seven years under survey [1922-29] a more marked
balance of production-consumption is evident. ... A sensitive con-
tact has been established between the factors of production and con-
sumption which were formerly so often out of balance. ... In many
cases the rate of production-consumption seems to be fairly well under
control. . . . There is now a more even flow from producer to con-
sumer. ... It would seem we can go on with increasing activity." ^^

An economist-statistician expressed the general illusion in "objec-
tive" terms:

"There have developed in this nation mainly since the war period
basic factors of a long-time nature which can be termed largely Amer-
ican. . . . First, increased use of power per worker; second, the recep-
tivity of the public to new commodities; third, modernized distribution
technique; fourth, increased purchasing power of the public; and, fifth,
industrial research. . . . American industry and business have reached
that status of well-being where it no longer has to fear a recurrence
of the radical spreads from prosperity to depression that formerly
afflicted business and industry." ^*

More moderate, but definitely optimistic, was the opinion of Rex-
ford Guy Tugwell, professor of economics at Columbia University,
who later became a major prophet of Niraism:

"Depressions continue to recur. They seem, however, to lessen in
extent. . . . Some of their worst effects may be said to have been
mitigated. . . . We seem to have made some considerable progress

Ballyhoo: The New Capitalism 21

toward correcting the swings o£ the rhythm and toward smoothing out
the fluctuations in activity." ^^

This confidence expressed itself in unlimited speculation. Much of
the ballyhoo of prosperity was created by intellectuals and professional
people, who were inflamed by their share of the "easy money" of
speculation. One day before the stock market crashed in 1929, Prof.
Irving Fisher said: "Current predictions of heavy reaction affecting
the general level of securities find little if any foundation in fact."
The market will "return eventually to further steady increases," and
"gains are continuing into the future" — sentiments he repeated five
weeks after the market crash, when he said there would be "no per-
manent ill effects" from the "false fear" created by the fall in stock
prices.^^ The belief in prosperity everlasting was so strong that the
depression, in its earlier stages, was not taken seriously. Said Colonel
Leonard Ayres, bank economist: "It does not seem at all probable that
the bear market of 1929 will be followed by any slowing down of
business at all comparable with the old business depressions. The
business and banking of 1929 are almost inconceivably strong." ^^

Crudely expressed or subtly rationalized, the ballyhoo of the "new
capitalism" evoked an enormous response. The "new" liberals and
"progressives," while they continued sniping at abuses, believed that
prosperity, with all its shortcomings, was working toward the "larger
good." Thus Stuart Chase wrote just before prosperity crashed:

"The scene is at once ludicrous, arresting, inspiring, and always
genuinely stimulating. . . . There is just a chance that America might
whirl itself into the most breath-taking civiUzation which history has
yet to record. . . . But to date the chief exhibit is activity." ^^

The form is negative but the content positive: American capitalism
may create a new social order. This appeared more clearly when Chase
wrote, after the collapse of prosperity, that capitalism in the United
States and communism in the Soviet Union "both in the last analysis
have similar goals, of which the most immediate and important is
the abolition of poverty." ^® This is a conception as crude as those of
any of the more vulgar myth-makers of prosperity. But the "new"
liberals and "progressives" felt that American capitaHsm was dif-
ferent, exceptional, and that in some mysterious fashion all its own
it would remake the world. The faith was lyrically and mystically
expressed by Charles A. Beard in the concluding words of the Rise
of American Civilization:

"Belief in unlimited progress— the continuous fulfillment of the
historic idea ... an invulnerable faith in democracy ... a faith in

22 The Decline of American Capitalism

the efficacy of that new and mysterious instrument of the modern
mind, 'the invention of invention,' moving from one technological
triumph to another, effecting an ever wider distribution of the
blessings of civilization — health, security, material goods, knowledge,
leisure and esthetic appreciation, and through the cumulative forces
of intellectual and artistic reactions, conjuring from the vasty deeps
of the nameless and unknown creative imagination of the noblest
order, subduing physical things to the empire of the spirit — doubting
not the capacity of the Power that had summoned into being all pat-
terns of the past and present, living and dead, to fulfill its endless
destiny.

"If so, it is the dawn, not the dusk, of the gods." ^°

Within a few years the "dawn of the gods" appeared in the most
disastrous and brutalizing of depressions, with 14,250,000 wage-workers
and 3,000,000 clerical and professional workers (and their dependents)
abandoned by Dr. Beard's deities. Now the prophets of state cap-
italism, including Dr. Beard himself, are invoking another dawn of the
gods. . . .

Dr. Beard was, moreover, contradicted even by the pre-depression
reality. Prosperity was unequally distributed, only meagrely shared
by the workers and farmers. There was grinding poverty and terrible
insecurity. Not only that: even if prosperity had been as great as its
ballyhoo, it was still woefully incomplete, still far behind prevailing
technical-economic resources. For capitalism always restricts produc-
tion and consumption, the possibilities of abundance and leisure po-
tential in the productive forces of society.

There was chaos in mining, textiles, and other industries, and in-
creasing unemployment. The number of strikes decreased considerably,
but the strikes that did occur were brutally suppressed. Poverty pre-
vailed on a large scale. The deepening agricultural crisis made peasants
of newer and larger groups of American farmers. The lightning of
the Sacco-Vanzetti tragedy revealed the yawning gulfs of ruling-
class savagery. But the mythology of prosperity, and particularly of
rising speculative profits, cast a glow over the unpleasant aspects
of economic reality.

Always, in one form or another, capitalism creates an ideology to
disguise and justify its predatory character: it is a necessary device
of class domination. Always there exists a deceptive millennial con-
ception of capitalism. It accompanied the growth (and decay) of
profit-sharing, flourished on the basis of the war-time controls of indus-
try, and acquired magnificent scope in 1923-29. It appeared again in

Ballyhoo: The New Capitalism 23

the "new capitalism" of Niraism, with only slight revisions in argu-
ment and style.

The pre-1929 myth-makers of prosperity did their job well. The
ideology they created lingered, as a cultural hangover, after the break-
down of prosperity and helped to prevent any considerable revolt. As
the ideology began to crumble under the impact of prolonged depres-
sion, it was revived and reinforced by the ballyhoo of the National
Industrial Recovery Act. But when the ideology begins to crumble
again, as it must, and the hopeless reality it disguises is revealed, the
economic crisis of American capitalism will become a class and polit-
ical crisis. We are witnessing not a "dawn of the gods" but the dawn
of an era of momentous social struggle and change.

CHAPTER II

The Meaning of Prosperity

Jl HE crisis of American capitalism manifests itself as a crisis of
prosperity. What is prosperity? It has three important characteristics:
it is always limited in its mass scope, it periodically breaks down, and
it cumulatively develops the elements of the decline of capitalism.
This is clearly revealed by a survey of the movement and character
of American prosperity, which necessarily becomes a survey of the
major aspects of American capitalist development.

Capitalism in the United States came to real power with the Civil
War and the progressive forces expressed and invigorated by that
struggle. EarHer capitalism was still largely in the commercial stage.
The commercial, not industrial, capitalist dominated the scene. Indus-
try was not highly developed, and it was small-scale industry. Many
industrial products were still imported; while foreign trade rose five-
fold from 1820 to i860, imports of manufactured goods rose six-fold.^
The country was predominantly agrarian, and prosperity was primarily
dependent upon agriculture (whether free or slave). There were
still great unsettled regions and other regions only thinly settled. But
industrial capitalism was developing rapidly; it played an important
part in the crisis and depression of 1837 and a still more impor-
tant part in the crisis and depression of 1857. ^^ industrial capitalism
grew it came into conflict with the South's control of the national
government. Commercial capitalism could tolerate the control, as it
was concerned essentially with the buying of goods, whether pro-
duced by free or slave labor, and it accepted the Southern demand
for free trade because that permitted buying goods where they were
cheapest. Industrial capitalism could not tolerate the slave South's con-
trol of the government, as it was concerned essentially with the
production of goods and free trade threatened its markets, while it
depended, moreover, upon mobile free wage-labor and needed a na-
tional banking system and transcontinental railroads, which the South
opposed. Slavery not only repressed capitalism in the South, but
interfered with its expansion in the North and West. The conflict
was the irrepressible one of two social systems involving the antag-
onistic relations of slave labor and free wage labor. As territorial

24

The Meaning of Prosperity 25

expansion was necessary for the South, to broaden the economic
and poHtical bases o£ slavery, it antagonized the farmers (and work-
ers) of the North and West who wanted "free soil" and who aHgned
themselves against the South. Pressed in and its expansion prevented
by the development of Northern industry and agriculture, the South
resorted to war. The Union victory crushed the political power of
the slave South, but it simultaneously crushed the agrarian democracy
of Jefferson and Jackson. For the coming to power of industrial cap-
italism subordinated agriculture to industry, and the costs of indus-
trialism were piled on the farmers (and workers). The war accelerated
the development of Northern industry, particularly in iron and steel
and textiles, and it was increasingly large-scale industry. Within
forty years American capitaUsm, economically and politically domi-
nant, was the mightiest in the world. Prosperity was now overwhelm-
ingly determined by the movement and the interests of capitalist
industrialism.

Prosperity in the North flourished during the Civil War. Business
failures and liabilities were negligible. Real profits in trade ranged
from 12% to 15/0.^ Manufactures yielded exceptional profits: the
dividends of a group of textile corporations, which averaged 8% in
1861, rose to 25% and 50%, while iron and steel profits were nearly
as high.^ Great fortunes were made by profiteering in industry, ex-
ploiting the government's war needs, and speculating in the com-
modity and stock markets. The national wealth and income were
redistributed, and their concentration increased, by rising prices and
speculative profits. Accumulation of capital was unusually active.
The war industries enlarged their capital equipment because of the
greater scale of operation. But production as a whole was practically
stationary. The increase of output in the war industries was offset by
decreases in other industries, while the increasing output of capital
goods was accompanied by a decrease in consumption goods. Sharply
rising prices cut real wages, which by 1865 were probably one-third
below the i860 level,* seriously reducing the workers' purchasing
power and consumption. This was true also of the farmers, the prices
of whose products rose less than the prices of products they had to
buy. Luxury consumption rose but consumption in general fell; ^ for
while production was stationary, an increasingly larger part of manu-
facturing output was used for capital goods and for the destructive
purposes of war. Prosperity during the Civil War was thus marked by
stationary production, lower real wages, and lower mass consump-
tion, by mass impoverishment instead of improved mass well-being.

26 The Decline of American Capitalism

But profits were high and the accumulation of capital correspondingly
great. There was, particularly, a marked growth in money capital
(most of it invested in government war bonds), whose real value
was raised by the post-war fall in prices.

The prosperity of the Civil War period was based upon an artificial
equilibrium created by the war's demands for goods and capital. An
almost inexhaustible market was provided by the government's orders
for munitions and other war goods. The industries producing these
goods could augment their output without worrying about markets;
and this meant also an augmenting of capital equipment. Deprecia-
tion of the currency, by lowering real wages, deprived the workers of
part of their consumption: more war materials could be produced,
and more capital goods for whose output the war provided a market.
The issuance of paper money, moreover, gave the government new
purchasing power (in addition to taxation and loans), which was
spent on the output of war industries, whose scale of production and,
consequently, capital equipment, was further enlarged. Profits not
invested directly in capital goods were invested in government bonds
and increased the government's spending, while the bonds remained
as money capital for use in the future.* This equilibrium created by
the war was upset by the peace; two years of minor depression pre-
vailed in 1866-67. Then prosperity surged upward.

The new period of prosperity was greatly influenced by the war's
results. Capital was abundant and investment opportunities ample.
Building construction, neglected during the war, led the upward
movement, and stimulated the production of brick, lumber, glass, and
similar products. Railroad construction was equally active, mileage
doubling in six years. These two movements dominated the revival
and prosperity. The import of capital stimulated railroad construc-
tion and favorably affected foreign trade. Prices fell sharply and real
wages by 1872 were much higher than in 1865 and even higher
than in 1860,^ and the resulting increase in mass purchasing power
promoted the production and sale of consumption goods. The fall

* The situation was altogether different in the South. Industry was not highly de-
veloped. The war's direct destruction was immense. While there was an accumulation
of money capital in the form of government bonds, their value was destroyed by the
Confederacy's downfall. Reconstruction involved an economic plundering of the South,
as well as the breaking of its political power. After Reconstruction, semi-servile Negro
labor was reintroduced, with the permissive consent of the Northern capitalists, who
shamelessly forgot all about the Negro. Industrialization in the South did not really
begin until the 1890's, because the South was economically prostrate and its industrial
development unimportant, as yet, to the capitalism of the North, except for railroads.

The Meaning of Prosperity 27

in prices also raised the real value of money capital accumulated
during the war, augmenting investment and the output of capital
goods. Industrialization proceeded rapidly; the output of machinery
and other forms of capital goods w^as increased greatly by the mechan-
ization of old industries and the development of new industries (iron
and steel, boots and shoes, glass, petroleum, mining, mechanical trans-
port equipment, milling, refrigeration, meat packing, and agricultural
implements). Technological efficiency and the productivity of labor
rose substantially. This increasing output and absorption of capital
goods meant an active conversion of profits into capital. It takes time,
particularly in the case of construction and railroads, for new capital
goods to make any demands on consumer purchasing power. But
the production of capital goods creates consumer purchasing power
(wages, part of salaries and profits), which is spent mainly on the
output of consumption goods industries. Thus an equilibrium is
achieved which sustains prosperity. But the equiUbrium is unstable
and temporary. For wages lagged behind profits and production be-
hind consumption. Eventually the new capital goods threw an aug-
mented mass of products upon the markets, and available consumer
purchasing power was insufficient to absorb them. The output of
capital goods began to fall. Construction and railroads, which had
been seriously overbuilt, led the downward movement. As production
began to fall it engendered a crisis and revealed the rotten conditions
in finance. The collapse of speculation, particularly in railroad securi-
ties, set the panic in motion: the failure of the great banking house
of Jay Cooke and Company was mainly due to its enormous holdings
of Northern Pacific Railroad paper. Financial crisis arose out of the
underlying economic crisis. Prosperity crashed into depression: hard
times, unemployment, and mass misery prevailed from 1873 to 1879.

From 1866 to 1897 there were fourteen years of prosperity and
seventeen years of depression — three minor depressions (1866-67,
1883—85, 1890-91) and two major depressions (1873-79, i^93~97)-'^
Depression and prosperity, and the period as a whole, were affected
by long-time factors of economic expansion, which provided increas-
ingly larger markets for goods and capital, and insured, until tem-
porarily limited by depression, the making of increasingly higher
profits and their conversion into capital.

Production, in spite of cyclical interruptions, mounted steadily. The
output of manufactures rose from $3,386 million in 1869 to $9,372
million in 1889.^ Profits were high. Small businessmen complained of
severe competition and low profits, but that was mainly because they

28 The Decline of American Capitalism

were oppressed by the big producers and monopolist combinations,
whose profits were all the larger. Profits often appeared small in terms
of over-capitalization, as in the complaint that railroad dividends
were very low; but practically all railroad stocks represented "water"
and not any real investment; they were the "wages of abstinence"
appropriated by buccaneering promoters and managements. The out-
put of capital goods scored an average yearly increase (quantitative)
of 7.2% in 1870-90 compared with only 4.8% in 1850-60.^ Labor's
productivity rose constantly; from 1870 to 1880 alone it increased
50% in mining, 85% in manufactures and 110% in transportation.^^

Real wages scored the largest gains in American history. By 1868
real wages had made good the war losses and in 1869 began to mount
over pre-war levels. There were interruptions, when wages fell, par-
ticularly in the depression of 1873-79, t>ut they rose in each period of
prosperity and in the period as a whole. By 1892 real wages were
much higher than in i860, although nearly stationary since 1887.
Gains in real wages were almost wholly a result of falling prices. The
index of average hourly wage rates rose from 61 in 1865 to 69 in 1872,
fell steadily to 59 in 1879, and rose again to 69 in 1892.^^ Wage gains
were unevenly distributed, skilled workers gaining more than the
unskilled and the organized more than the unorganized, while immi-
grant workers were forced to accept the lowest of low wages; unem-
ployment, moreover, both cyclical and technological, offset much of
the wage rise.

Consumption also rose more than in any other period in American
history. The average yearly increase per capita was 5.4% in 1870-80
and 3.2% in 1880-90.^^ Part of the rise represented a change from the
use of goods produced at home or in neighborhood shops to the use
of manufactured goods, particularly among farmers. But a consider-
able part represented the increase in labor's consumption due to higher
real wages. Other classes, however, gained more than labor. Among
the newly rich there was an outburst of conspicuous competitive con-
sumption (particularly among speculators and other financial buc-
caneers), which flaunted itself in the face of workers who, despite
higher real wages, were tormented by real poverty further aggravated
by recurrent unemployment.

While labor shared in the gains of higher productivity, the capitalists
secured the lion's share. Renewed concentration of income appeared
in each period of prosperity; the number of millionaires rose from
probably 500 in i860 to over 4,000 in 1892. Nor was higher produc-
tivity the primary cause of higher real wages; they rose because of

The Meaning of Prosperity 29

steadily falling prices, and in spite of employers repeatedly cutting
money wages, particularly in depressions. Wage cuts and cyclical and
technological unemployment provoked strikes which frequently as-
sumed the aspect of civil war. Railroad managements violently fought
their workers in the great strikes of 1877, and the workers opposed
violence to the violence of the troops and police; Jay Gould broke the
telegraphers' strike and helped to crush the Knights of Labor; the
eight-hour movement met merciless opposition and ended in the Hay-
market tragedy; Carnegie and Frick mobilized hired gunmen against
the Homestead strikers; President Cleveland used Federal troops to
break the Pullman strike, during which the injunction was effectively
used as a capitalist weapon in labor disputes. Labor's militancy forced
higher real wages upon the employers: the resistance prevented money
wages being cut more than they were, falling prices raised the purchas-
ing power of wages, and lower prices and higher wages compelled
the employers to increase the productivity of labor to secure higher
profits. There is no direct or necessary connection between higher
productivity and higher wages; rising prices and higher productivity
are usually accompanied by stationary or falling real wages. Labor's
gains (always subsidiary to capitalist exploitation and profit) were
wrung from the capitalists by means of the blood and agony of strikes
against which the state mobilized its physical and legal force.

Nor did the farmers share fully in prosperity, except the capitalist
and speculative upper layers. Agricultural prices fell, surplus crops
mounted, the burden of debt became staggering. Although their num-
bers increased, the farmers' share of the national income decreased.
Tenancy rose from 25.6% in 1880 to 35.3% in 1900.^^ These condi-
tions produced the agrarian uprisings of the i87o's-9o's.*

The developments which produced prosperity also and necessarily
produced disastrous depressions: they are the inseparables of capital-
ism. Industrialization proceeded haphazardly, competitively, socially
unplanned and unregulated. The expansion of industry and accumula-
tion of capital exceeded balanced requirements. As new industries

* "For nearly the whole thirty years of the seventies, eighties and nineties, American
agriculture, though it extended its horizons almost boundlessly, was in reality being
operated at a small profit or none at all. The only thing that sustained the individual
farmer was the constant appreciation of land values. . . . The high value of his land
permitted him to convert his floating debts into mortgages with the result that the
mortgage indebtedness was becoming heavier every year. ... A larger and larger
share of the farmer's crops (because of his indebtedness and the increased valuation
of his land) went for the payment of interest charges and taxes." Louis M. Hacker
and Benjamin B. Kendrick, The Untied States Since 1865 (1932), p. 179.

30 The Decline of American Capitalism

(including railroads) developed they stimulated prosperity by absorb-
ing capital goods and creating new purchasing power. But eventually
they got out of balance with each other and with other industries,
lessened their demands for capital goods, and strained the capacity
of existing markets to absorb their output; for industry as a whole
disbursed more investment than consumption income. Excessive ac-
cumulation and overproduction, sharpening the disparity between
production and consumption, upset the always unstable equilibrium
which is capitalist prosperity. Prosperity turned into one depression
after another. Depression lowered or wiped out profits, destroyed or
depreciated large amounts of capital and thus prepared recovery and
a renewal of accumulation. Depression had other effects. Manufac-
turers were forced to adopt more efficient methods of production to
insure profits, which created a demand for new and more efficient
capital goods, while old equipment was scrapped. Many capitalists
were eliminated, but the survivors became stronger. Thus concentra-
tion of industry, a result of increasing large-scale industrialization,
was strengthened by depression, a mighty lever of the centralization
of capital.

Out of the process of capitalist production and accumulation as a
whole arose a constantly greater tendency toward monopoly. The
Civil War accelerated the growth of large-scale industry because of
the heavy demands for war materials, making necessary more ef-
ficiency, larger plants, the investment of more capital, and the con-
solidation of plants. This movement was strengthened by the
increasing standardization and quantity production of goods. In the
post-war period falling prices and intensified competition encouraged
the growth of large-scale industry; they emphasized the underlying
necessity of capitalist production for greater efficiency, lower costs, and
higher profits, which means an enlargement of the scale of produc-
tion and, consequently, of capital equipment. As industry became
larger it resorted more and more to the corporate form of organiza-
tion, facilitating the consolidation and combination of industrial enter-
prises. The trustification of industry began, and the emergence of
monopoly, an outcome of efforts to beat down competitors, control
markets and prices, and "earn" higher profits. By 1897 there were
82 industrial combinations with a capitaUzation of $1,000 million; in
the three years 1 898-1900 eleven great combinations were formed with
a capitalization of $1,140 milHon; and the greatest combination of all,
the United States Steel Corporation, appeared in 1901 with a capitali-
zation of $1,400 million.^* The development of trustification and

The Meaning of Prosperity 31

monopoly was accompanied by the multiplication o£ stockholders,
deprived of any direct economic functions, and by the resulting sepa-
ration of ownership and management. Management became the func-
tion of corporate employees. Control was usurped by financial capi-
talists, who increasingly operated through the great banking houses
and who consolidated their control with interlocking directorates. For,
as formerly the industrial capitalist replaced the commercial capitalist
as the dominant factor, so now the industrial capitalist (except in
small-scale industry) was being beaten down or transformed into a
financial capitalist, who is deprived o£ all constructive industrial func-
tions and prefers speculation to production. Monopoly, by extorting
higher profits, increasing the disparity between production and con-
sumption, and waging war upon small-scale industry, aggravated
instability and the forces making for cyclical crisis and breakdown;
and by the power to protect itself from the deflation and liquidation
which are the preconditions of revival, monopoly tended to prolong
depression. Moreover, by raising prices, restricting production and
demand, and limiting technical progress, monopoly was identified
with the elements of the decline of capitalism.

But the elements of decline were held in check by an important
peculiarity o£ American capitalism: Monopoly appeared in the midst
of developing industrialization and renewed expansion of the frontier,
which was bound up with the continued growth of agriculture. Indus-
trialization in the East was proceeding rapidly in the years 1870-90:
and within the same period monopoly arose, although ordinarily there
is an appreciable time lag. The highly industrial Eastern states
would have produced imperialism and the tendency toward decline,
but the frontier's expansion provided the opportunity to develop inner
continental areas and resources. This stimulated railroad construction
and absorbed large amounts of agricultural equipment. New markets
were created by new settlements and the inflow of immigrants. The
exploitation of agriculture provided cheap food for the workers, which
raised their real wages without any cost to the capitalists, and the
exports with which to pay for the imports of capital so necessary to
rapid industrialization. Thus the inner continental areas, whose de-
velopment provided markets for both capital goods and consump-
tion goods, invigorated the long-time factors of economic expansion.
These factors not only stimulated the upward movement of pros-
perity after depression, they also overcame, for the time being, the
elements of decline identified with monopoly capitalism. . . .

While the periods of prosperity, and the period as a whole, in the

32 The Decline of American Capitalism

years 1866-92, were marked by a simultaneous, if uneven, increase in
production, productivity, profits, real wages, and mass consumption,
this was not true of the years 1898-1914.

The depression of 1893-97 coincided with the measurable exhaus-
tion of the long-time factors underlying the movement of economic
expansion, accumulation of capital, and prosperity, particularly with
the closing of the frontier. (There was further industrialization in the
Western regions and its beginnings in the Southern states, but neither
was on a scale capable of stimulating an unusual upsurge of pros-
perity.) Railroad construction declined considerably in its rate of
growth. No great expansion appeared in new or old industries, with
the exception of electric power, which, however, grew slowly. But
monopoly consolidated its domination and prepared new conquests;
it "recapitalized" industry, scooped in enormous profits, and rela-
tively hampered the growth of productive forces. Imperialism be-
gan to emerge and shape American policy. Although capital was
still imported, there was a considerable export of capital: American
foreign investments by 1912 amounted to $2,000 million compared
with $500 million in 1900.^^ Practically all the export of capital was
in the form of direct investments by monopolist combinations, to
develop new markets, establish branch plants, control sources of
raw materials, and secure larger profits. Exports of manufactured
goods increased rapidly; exports of crude foodstuffs decreased. Monop-
olist combinations organized and integrated production; but the
planning, wholly within the limits of particular enterprises, sharpened
competition and speculation, and aggravated all the contradictions of
accumulation and prosperity. Businessmen, economists, and speculators
spoke of a "new economic era," of prosperity everlasting. At a dinner
where J. Pierpont Morgan was the honored guest, John B. Claflin,
millionaire merchant, said:

"With a man Hke Mr. Morgan at the head of a great industry, as
against the old plan of many diverse interests in it, production will
become more regular . . . and panics become a thing of the past." ^^

But prosperity sagged in the minor depression of 1903-04 and
crashed in the major depression of 1907-08. In New York City alone
there were 100,000 unemployed, innumerable breadlines, and men
"eager to work for 35 cents a day." ^^ Clever people organized the
"Sunshine Movement" — think prosperity and prosperity will revive!
The depression was not as severe and prolonged as the two preceding
major depressions. But there was no upsurge of prosperity: recovery
was on a relatively lower level. Only fitful prosperity prevailed from

The Meaning of Prosperity 33

1909 to 1914, accompanied by unusually large unemployment: a "de-
pressed" prosperity, the indication of economic decline. One element
of this decline was monopoly capitalism. The financial capitalists, with
the elder Morgan at their head, who had "settled" the financial panic
of 1907 but were unable to influence the revival of prosperity, used
the opportunity to extend and consolidate the power of monopoly.
This power, by interfering with the free play of economic forces and
preventing complete liquidation, hampered recovery, emphasized by
lack of an upsurge in the long-time factors of expansion. Monopoly
capitalism became more interested in the export o£ capital, more defi-
nitely imperialist. Backed by the diplomacy of the Taft Administra-
tion, American imperialism issued its challenge to the European im-
perialist powers, demanding the "right" to share in Chinese loans and
concessions. The elements of decline appear clearly in the fact that
the average yearly increase in production was only ^.6% in the five
years igog—i^ compared with "j.^^/o in the jive years 1^02—06.^^ There
was a flattening in the rate of growth of production, which continued
after the World War.

Crises tend to become constantly more severe; but their severity is
expressed not only in the spread of the swings from prosperity to
depression, but also in the level of prosperity after recovery. In post-
war Europe the cyclical swings were not great, yet during the whole
period, both in prosperity and depression, the tendency was for the
general crisis of capitalism to become more acute and for permanent
unemployment to increase — clear indications of the decline of capi-
taHsm. . . .

In spite of relative economic decline, the output of industry and the
productivity of labor scored substantial gains in the years 1 899-1914,
although they were much lower than in the preceding period. Manu-
factures rose 65.6% and output per wage-worker 19.9%;^^ the in-
creases in mining and on the railroads were slightly higher. The
comparatively small rise in the productivity of labor was due mainly
to two factors: the practices of capitalist monopoly, which tend to
hamper technical progress; and absence of the stimulus to efficiency
of falling prices, as rising prices assured rising profits (although part
of the rise was not real because of the depreciated value of money).
Stock prices rose. An investment, in 1901, of $10,000 in the common
stocks of 93 industrial, public utility, and railroad corporations yielded,
by 1913, cash income of $8,661 plus an increase of 36% in capital
value.^° The rise was much greater in the prices of stocks of monop-
olist combinations, because of monopoly prices. Recapitalized com-

34 The Decline of American Capitalism

binations, such as the United States Steel Corporation, squeezed the
"water" out of their stock by reinvestment of part of their great earn-
ings. While the real income of all wage-workers increased an average
of only 04% yearly and that of workers in manufactures decreased
o.i/o, the real income of stockholders increased 1.2%.^^

Thus prosperity, although limited by the elements of economic
decline, was accompanied by increasingly higher production, produc-
tivity, and profits, but not by increasingly higher real wages. Real
wages were practically stationary, except for small gains among small
groups of organized skilled workers. Money wages rose, but their
purchasing power was cut by rising prices, while a slight increase in
real hourly earnings was ofFset by shorter working time. Real yearly
earnings in the years 1 898-1906 averaged 3% below the 1891 level;
they fell in the 1907-08 depression and rose again, but were only a
trifle above the level of 1891.^^ Labor did not share in the gains of
rising production and productivity.

The working class received a decreasing share of the national in-
come, while the concentration of income rose considerably. In spite
of the expropriation of independent small producers, the middle class
increased its share of the national income, as a result of the growth
of the "new" middle class of technical, supervisory, and managerial
employees in corporate and trustified industry, of employees in the
distributive trades, and of persons in professional occupations. Rising
prices (and a relative restriction of agricultural production) favored
the farmers, as the rise in the price of farm products was greater than
the price rise of industrial products. While the farmers constituted a
decreasing proportion of the gainfully occupied, they increased their
share of the national income 14% per capita. Not all farmers made
gains, however: prosperity was concentrated in the upper layers; the
rise in capital costs exceeded the rise in prices; and tenancy rose from
35.3% in 1900 to 37% in 1910.^^ The largest gains were scored by the
richest 1.6% of the population, the upper capitalist bourgeoisie, whose
share of the national income rose from 10.8% in 1896 to 19% in
1909.^* All classes shared in prosperity except the wage-workers (hired
farm laborers, however, made some small gains in real earnings).

While consumption among workers was stationary or downward,
there was an increase in general social consumption. It was, however,
considerably smaller than in the preceding period. Consumption rose
an average of only 1.9% per capita in 1900-1910, compared with 4.3%
in 1870-90.^^ Another estimate, covering the years 1901-14, indicates
an average yearly increase in consumption of only 0.6%.^^ Produc-

RJC//£SrU%
SHARE Of
A/AT/OAfAl
Xio fNCOME

%m

2.1 0

XQO

'|HPR0DU0T(ONh]

CONSUMPTJON
H GrOODS

' PRODUCTIVITY ^
OF LA&OR n

^^r-jR^ALWAG^

<J0

Vi^

H03

l*?OT

nil

HIS

WW

I. MAJOR ECONOMIC TRENDS— 1896-19 19.

36 The Decline of American Capitalism

tion was stimulated more by the output of capital goods than by the
output of consumption goods: where the former made an average
yearly gain of 5%, the latter made a gain of only 2.6%^ Accumula-
tion of capital increased more than production; and prosperity was
based primarily on the production of capital goods and of consump-
tion goods whose increase was absorbed by non-workers.

The opinion was general, even in non-labor circles, that the workers
had gained little if anything (except a small gain from shorter hours)
in recent years. One liberal economist said:

"There is nothing in the facts . . . which can give the wage-workers
cause for rejoicing. The doctrine so popular in certain quarters that
while the rich have grown rapidly richer in recent years the poor have
also steadily risen in the scale of economic welfare has no foundation

in fact." ^«

Another liberal economist, stressing the same facts, almost devel-
oped a class conception of prosperity:

"It is perfectly possible, as history has repeatedly demonstrated, for
the standard of living of a society as a whole to be improving while
that of one or more groups within the society is declining. Moreover,
if the distribution of economic power within a society is very unequal,
it may happen that the group, the standard of which is declining,
may constitute a very large proportion, even a majority, of the total
population." ^®

Prosperity is not simply an economic category; its decisive aspects
are class-political, its distribution determined by class power and the
class struggle in general and by capitalist domination in particular.

A new upflare of labor militancy marked these years. Strikes were
many and bitterly fought. Manufacturers' associations waged ruthless
war on trade unions, while the unions moved toward more militant
policies and action. Economic decline, the unequal distribution of
prosperity, and the growing stratification of classes resulted in an
increase of the socialist vote and a rallying of more radical workers to
the Industrial Workers of the World. Dissatisfied labor, unclear about
class purposes and means, largely merged itself in the progressive
revolt against the trusts — the last stand of the older competitive and
agrarian capitalism which since the i88o's had been urging the gov-
ernment to smash or regulate corporate combinations: individualist
middle class and agrarian radicals demanded collective state actjon to
assure free competition! This movement became itself the means of
defeating the purposes of its sponsors. Theodore Roosevelt used the
movement to impose forms of regulation which consolidated the sys-

The Meaning of Prosperity 37

tern of industrial and financial centralization, of monopoly capital-
ism;* the revolt of the small producers and farmers ended in their
complete subjection, because of the economic weight of capitalist
monopoly and its political power, expressed in the Supreme Court's
decision to apply the "rule of reason" to the trusts. The complex rela-
tions of monopoly capitalism and its tendency to aggravate contra-
dictions and produce economic decHne made indispensable some
measures of state intervention and regulation (the initial stages of
state capitalism), but the measures were primarily in the interests
of monopoly capitalism. Regulation was weakened in the fat years of
post-war prosperity, but the depression and economic decHne resulted
in the need and demand for more regulation, more state capitalism.
This newer regulation, unlike the old, openly accepts monopoly capi-
talism; according to an outstanding spokesman of the National Recov-
ery Act and its institutional proposals:

"We are resolved to recognize openly that competition in most of
its forms is wasteful and cosdy; that larger combinations must in
any modern society prevail. We go further: we say that they should
be allowed to prevail, but only under such conditions of control as
assure a just distribution of the wealth they develop and now accumu-
late to the people as a whole." ^°

Formerly the "just distribution of wealth" was to be assured by
measures to restore or "protect" competition, now by "control" of
monopoly; but the exploiting relations of capitalist production, par-
ticularly under conditions of economic decline, determine the repeti-
tion of the older experience: the strengthening of monopoly capitalism
and the more unequal distribution of wealth. . . .

The years 1915-18 were marked by "war prosperity," which pre-
vented another major depression and temporarily overcame the tend-
ency to economic decline. War markets were almost inexhaustible.
Production, profits, and the accumulation of capital surged upward.
Manufacturing output averaged 31.7% higher than in 1913 and total
production 23.5% higher.^^ Profits were extraordinarily high in 1916,

♦ Roosevelt, in relation to the trusts, spoke big but carried a small stick; he prac-
ticed an essentially Fascist technique of using middle-class discontent to strengthen the
forces against which the discontent was directed. His program was opposed by the
more stupidly reactionary captains of industry and finance. J. Pierpont Morgan was
Roosevelt's great antagonist; at a Gridiron Club dinner to bring them together, the
President, after outlining the action necessary to meet the revolt against Big Business,
shook his fist in the financier's face and shouted: "And if you don't let us do this,
those who will come after us will rise and bring you to ruinl" See Owen Wister,
Roosevelt, the Story of a Friendship (1930), p. 212.

38 The Decline of American Capitalism

because of the war demands of belligerent Europe and the capture of
its foreign markets by American exports. The concentration of income
increased greatly: the number of incomes of $100,000 and over rose
from 2,290 in 1914 to 6,633 ^^ 1916.^^ After the United States, interlocked
with the world market and imperialism, entered the war, profits
mounted again, although part of them was appropriated by the gov-
ernment in war taxation, while another part was reinvested to evade
taxation. The distribution of profits was uneven; some industries
were depressed while industries supplying war needs piled up large
earnings, a new chemical industry was created, and most plants aug-
mented or improved their productive equipment. Retail trade was
prosperous. The accumulation of money capital, in the form of gov-
ernment bonds, was great, and, as after the Civil War, its real value
was increased by the post-war fall in prices. Farmers gained from the
upward movement of prices and European demand, and their share o£
the national income rose again (although the rise in land values, as the
farmers capitalized prospective profits, prepared disaster). There was
a large export of goods and of capital: the United States became a
creditor nation. The World War not only influenced prosperity and
the tendency to economic decline but also the very structure of Amer-
ican capitalism by forcing the maturity of three fundamental develop-
ments: the control of industry by monopolist combinations, the export
of capital, and the emergence of imperialism as a dominant force.

Again labor did not share in prosperity (except in the form of
greater employment).* Real hourly earnings in 1915 increased 3%
over 1 914 but were stationary in the following year and decreased
(over 1915) 6% in 1917 and 4% in 1918.^^ Because of labor shortage
and consequent full-time employment and overtime, yearly earnings
rose slightly, but there was no definite upward movement in real
wages. In most occupations outside the war industries, real wages
dropped considerably, especially in some union trades bound by long-
term agreements.

The movement of consumption was downward; in 1910-20 it
fell an average of 0.8% yearly, mainly during the war years.^* The
considerable increase in production was absorbed by luxury consump-
tion and war needs, by exports to the Allies (paid for by loans, the
export of capital), and by capital goods. Labor was excluded. . . .

* sharply rising prices and profits discouraged any substantial increase in produc-
tivity, which in 191 9 was ony 2.6% higher than in 1914. Frederick C. Mills, Economic
Tendencies in the United States (1932), p. 192.

The Meaning of Prosperity 39

One thing is clear: increasingly higher wages and mass consump-
tion are not inseparable accompaniments of prosperity. Of the seven
periods of prosperity in the years i860 to 191 8, only three periods
totaling fifteen years were marked by increasing real wages and mass
consumption, while four periods totaling twenty-one years were
marked by stationary or falling real wages and mass consumption.
Including the periods of depression, real wages and mass consumption
were stationary or fell during forty-three of the fifty-eight years of the
period under survey. So-called prosperity may assume four forms under
capitalism :

1. Increasingly higher real wages, consumption (including labor
consumption), production, productivity, and profits.

2. Stationary or falling real wages, production, and consumption,
but increasingly higher profits.

3. Increasingly higher production, consumption, and profits, but
stationary or falling real wages, labor consumption, and labor stand-
ards of living.

4. Increasingly higher production and profits, but stationary real
wages and consumption, the increase in production being absorbed by
capital goods, the export of goods or the export of capital, or a com-
bination of all three.

The productivity of labor rises in all four forms of prosperity. Only
one of the four forms of prosperity, however, is accompanied by higher
real wages and mass consumption. But all four forms of prosperity
are accompanied by larger profits and accumulation of capital, which
are always present: they are prosperity under capitalism.

As a class, the farmers (in spite of the great gains of some groups
or individuals) did not share in the upward movement of prosperity
in 1861-96, although the expansion of agriculture was a basic factor
in prosperity. They shared in the gains thereafter up to and during
the World War, mainly because of rising prices. But the farmers were
definitely excluded in the post-war period: prosperity flourished while
depression prevailed in agriculture.

Prosperity under capitalism is an economic condition which yields
high profits and permits their conversion into capital by means of
an increasing output and absorption of capital goods. These are the
dynamics of capitalist production and prosperity. They depend, in
final analysis, upon increasingly larger markets. But it is unimportant,
in terms of capitalist prosperity, who composes the markets and who
buys the goods, providing there are markets, sales, and profits. Con-
sumption may increase among classes other than the workers. Goods

40 The Decline of American Capitalism

may be absorbed by conspicuous competitive consumption, useless and
meretricious construction, and other forms of waste, which is an
indispensable condition of capitalist production, by war, or by the
export of goods and capital. The output of goods (and services),
which under capitalism is always below the possibilities of the prevail-
ing state of the industrial arts, is determined by the economic-class
consideration of profit, not by any standards of what is socially most
desirable and humanly most beneficial. Labor's gains are small: they
are secured slowly and agonizingly, are interrupted by periods of
prosperity in which the workers get none of the fruits of economic
progress, and are wiped out in depression. For there is an inevitable
and recurrent breakdown of prosperity, because the economic-class
consideration of profit does not permit of a "balanced" development
of production and consumption. Depression is a condition where pro-
duction is temporarily unprofitable, profits are small, and their con-
version into capital is restricted; the accumulation of capital lags,
and therefore millions are thrown out of work and mass starvation
prevails.

Thus, at the best, on the basis of previous experience, the prospect
ahead is of a prosperity in which the workers (and the farmers and
professionals) may not share or will share meagerly, followed by
another depression in which they will suffer untold agony. But, in
fact, the prospect is worse. In the past a higher level of prosperity arose
after a depression, because the long-time factors of expansion stimu-
lated an upward economic movement: profits were high, as the
growth of new industries and the industrialization of new regions
absorbed large amounts of capital goods and accelerated accumula-
tion. Because of exhaustion of the long-time factors of expansion,
prosperity must now be on a definitely lower basis, with lower prof-
its, still lower wages, and greater unemployment. The prospect, then,
is of a "depressed" form of prosperity worse than that which prevailed
in 1909-1914. This necessarily means a crisis of the capitalist system.
For the underlying cause of "depressed" prosperity, which is exhaus-
tion of the long-time factors of expansion, is inseparably interlocked
with the decline of capitalism.

CHAPTER III

The Decline of Capitalism: General Survey

Jl HE decline of capitalism was evident in Europe even before the
crisis and depression v^^hich set in after 1929. A general economic crisis
prevailed and cyclical prosperity was on a lower level than pre-war,
while capitalism was crushed in the Soviet Union. Bourgeois econo-
mists, particularly in Germany, admitted and analyzed the elements
of decline. In the United States, however, it was smugly assumed
that economic decline was the lot of lesser breeds outside the law —
the law of American prosperity everlasting. For hadn't American
capitaUsm solved the problem of prosperity? There would not and
could not be any more depressions and hard times: prosperity was
eternal, world without end, and a new world around the corner. But
when prosperity crashed in the United States, and crashed more
severely than in Europe, where the already existing economic crisis
was aggravated by the new cyclical breakdown, the sentiment was
general that "capitalism is on trial." Some prophesied the crack o'
doom, others argued that capitalism might survive if it "reformed"
itself. In Europe it looked like the end; American prosperity had
seemed as firm as the Rock of Gibraltar, and now it was overwhelmed
by the seas of depression.* A German bourgeois economist thus voiced
the feeling of despair :

"Is the capitalist system really any longer justified if, in the richest
country in the world, it is incapable of shaping an order which shall
guarantee to a comparatively sparse population, admittedly indus-
trious and capable, a subsistence consonant with the human needs
developed by modern technique, without millions being from time to
time reduced to beggary and dependence on soup kitchens and casual

* American prosperity became a political issue in Europe. "Look," said the capitalists
and their apologists (including leaders of the British Labor Party), "look at American
prosperity: universal, increasing, everlasting! It shows what can be done by organized,
enlightened capitalism. American prosperity realizes the spirit and promise of capitalism;
the European economic crisis is the result of non-capitalist factors, an aftermath of
war. Why go communist? Why npt go American.?" This song is no longer sung. But
some of the apologists (including leaders of the British Labor Party) later sang the
NRA song! Hope springs eternal in the breasts of reformers.

41

42 The Decline of American Capitalism

wards? . . . The crisis of economic policy may easily become a crisis
of the economic system." ^

Underlying much of the American comment on the depression was
the feeling that new and imponderable forces are at work involving
a crisis, an economic decline, or at least its possibility. Some of the
despair disappeared with the coming of manipulated and speculative
revival. But the NRA was itself an expression and recognition of the
crisis. And the feeling of despair reappeared after the breakdown of
the revival. For the decline of American (and world) capitalism condi-
tions recovery, limits its scope and dominates the future. Capitalist
decline does not result in complete collapse, in an inability to function
or to restore a measure of prosperity. The cyclical movement con-
tinues, but on a lower level, within the restricting circle of economic
decline. This means a "depressed" prosperity, with increasing inse-
curity, unemployment, and instability; while economic, class, and
international contradictions and antagonisms become sharper and more
threatening. There may be spurts of unusual prosperity, but these
will merely intensify the decline.

The decline of capitalism is the outcome neither of the depression
nor of the World War. It was the fact of decline which gave the war
its specific historical character — decline producing war and war react-
ing upon decline. The decline of capitalism is the outcome of general
capitalist development and of the movement of social change. In long-
time perspective, the decline of capitalism is determined by its having
outgrown the historical necessity of its being. In the words of Prof.
F. L. Schuman: "Western civilization is already old. It may already
have run its course and be headed toward a long twilight of decline.
In any case its problems are immediate, pressing, and threatening."^
This is a conclusion in terms of the future, not of a past compact of
the wish-fulfillments of the agrarian-Junker reactionary, Oswald
Spengler, whose lamentations, nevertheless, express the decline of
capitalist culture. Minor social changes produce a situation where a
major social change becomes necessary — the revolutionary substitution
of the old order by the new. In short-time perspective, the decline of
capitalism is determined by the high development of the productive
forces and the relative exhaustion of the long-time factors of expan-
sion. This imposes fetters upon the further development of industry,
leads to a slackening rate of growth and eventually an absolute fall
in production, and results in economic decline and social decay.

Capitalism appeared in history as a revolutionary force, waging war
upon the economic, political, and cultural relations of feudalism.

The Decline of Capitalism: General Survey 43

Profits are the heart of capitalism, markets its circulating system; capi-
talist enterprise consequently required the transformation of produc-
tion for use into production for profit and increasingly larger markets.
Capitalist production also needed a free labor market of propertiless
workers distinguished from serfs and slaves by their "freedom" to
work for wages anywhere, which was accomplished by expropriating
peasants from the soil and artisans from their means of labor. These
changes upset the old productive relations and their class, political,
and cultural expression. Feudalism was based upon a static agriculture
under the domination of the nobility; the growth of a dynamic capital-
ist industry undermined both agriculture and the nobiUty. Feudal
"collectivism" imposed restrictions upon capitalist enterprise; the ideo-
logical and spiritual sanctions of feudalism had to be broken, which
meant a struggle against the old culture and religion. This movement
was bound up with the necessity for freedom of enterprise and com-
petition, of laissez-faire, individualism, and democracy: the revolu-
tionary representatives of the bourgeoisie, transcending immediate
needs, invoked an ideal of individualism and democracy which is now
completely repudiated by imperialism and fascism. The commercial
revolution, with its new attitudes and its need for more goods and
more efficient production, stimulated experimental science and its
technological application. Out of foreign trade, colonial conquest, and
settlements overseas arose the world market, creating increasingly
larger markets and profits. Bourgeois development was being ham-
pered by the political power of the feudal nobiUty; the upper bour-
geoisie faltered and compromised, but action was forced by the pres-
sure of the lower bourgeoisie and the downtrodden peasants and
urban workers: the nobility's political power was broken by means
of violent revolution involving dictatorship and confiscation of feudal
property. The social-economic changes were completed by the tech-
nical-economic changes of the industrial revolution. This revolu-
tion, alongside the brutal exploitation of men, women, and children in
the new factory system, stripped production of its technical fetters
(although capitalism imposed new fetters). Capitalism remade the
world economically, politically, and culturally.

Once in power capitalism abandoned its revolutionary ideals: they
now threatened its own vested class interests. These ideals had always
had a limited practical application; thus laissez-faire was never wholly
accepted by the bourgeoisie (except in England, when it was the
workshop of the world) and capitalism resorted to protectionism,
monopoly, and state aid. The bourgeoisie did not make a clean sweep

44 The Decline of American Capitalism

of feudalism. The older relations lingered on in agriculture, while the
nobility, frequently enriched by the industrial utilization of minerals
in their estates, and exploiting the parvenu spirit and political inepti-
tude of the bourgeoisie, clung to a considerable measure of power.
Democracy was limited to bourgeois democracy. While developing
as a condition favoring the social relations of capitalist production,
democracy had also been an ideal and practice remaking the world;
it was now limited, an ideology insuring capitalist domination, with
labor forced to fight for democratic rights. Capitalism developed un-
evenly; it produced recurrent economic crises and wars, limited expan-
sion of the home market in favor of the larger profits of overseas
markets, including colonial exploitation, and repressed or ruined agri-
culture. (New expropriations, direct or indirect, of peasants from the
soil supplied the human raw material of industrialism. Large numbers
of expropriated peasants were forced by uneven and restricted indus-
trialization to migrate to the new world, particularly the United States :
thus American capitalism also played its role in the expropriation of the
peasantry — in Europe.) The class which had flamed forth in revolution
used its heritage in a fashion indicative of coming decline.

But these are the contradictory and antagonistic conditions of capi-
talist development. There was economic expansion in spite of recur-
rent crises and limitation of the home market, as well as an increasing
technological application of science in spite of an inability to utilize
fully the conquests of science and technology. Production increased
enormously, the productivity of labor multiplied. Industry organized
itself in large-scale enterprises, mobilizing large amounts of capital
and labor^ developing an inner corporate planning which contrasted
sharply with the outer social anarchy of production. Capitalist indus-
trialism spread (unevenly, piratically) over the whole world, extend-
ing the world market and changing national and class relations. The
prospects of capitalist expansion and supremacy seemed unlimited,
eternal, and this dream underlay the smugly unreal assumptions of
bourgeois economic theory and the "hopeful" proposals of liberal and
socialist reformism.

The nature of capitalist production, however, makes its develop-
ment a perpetual struggle between the forces of expansion and decline,
because of three fundamental factors:

I. Capitalist production depends upon profit, upon the accumula-
tion of capital and increasing opportunities for its profitable invest-
ment. But accumulation tends to outstrip itself and limit the means

The Decline of Capitalism: General Survey 45

of profitably investing capital, which results in a periodical overproduc-
tion of capital goods.

2. The realization of profit depends upon increasingly larger mar-
kets to absorb the rising output of consumption goods, a necessary
condition for an increasing absorption of capital goods. But capital-
ism tends to develop the forces of production beyond the forces of
consumption; it cannot systematically and planfuUy balance produc-
tion and consumption, which results in a periodical overproduction of
consumption goods.

Thus the accumulation of capital and the resulting prosperity them-
selves become fetters on the further movement of expansion,
accumulation, and prosperity. This is the fundamental cause of cyclical
breakdowns. In these breakdowns there is an element of decUne;
they indicate the incapacity of capitalism to develop all the forces of
industry, they express a definite, if temporary, exhaustion of economic
progress, and they tend to become constantly more destructive in their
upsets of prosperity. But the real element of decline appears in the
third factor:

3. Capitalist production tends to exhaust the long-time factors of
expansion and to limit, at first relatively, then absolutely, the pos-
sibilities of economic advance. Capitalist production must yield profits
and these profits must be converted into capital by means of an in-
creasing output and absorption of capital goods. This is the accumula-
tion of capital. In its early stages, capitalist production seizes upon the
most highly developed handicrafts, already producing for compara-
tively large markets, and destroys them by mechanizing their pro-
ductive activities. The result is an increasing output and absorption
of capital goods. Gradually all the older crafts are mechanized, which
again means an increasing output and absorption of capital goods.
Then the development of wholly new industries, the industrialization
of new regions, and the mechanization of agriculture (although incom-
pletely) create new and greater demands for capital goods. The work-
ing of these long-time factors of expansion results in an enlargement
of the scale of production and in an increasing accumulation of cap-
ital. But as expansion is restricted or becomes exhausted, limits are
imposed upon the possibilities of making profits and converting them
into capital by means of an increasing output and absorption of capital
goods. The resulting tendency toward economic decline is identified
with monopoly and imperialism.

Capitalist monopoly arises out of the concentration of industry,
which is accompanied by the massing of capital in large enterprises,

46 The Decline of American Capitalism

overdevelopment of productive capacity, limitation of the possibility
of any considerable new^ expansion, and the intensification of com-
petition. Profits are threatened. Monopoly answers the threat with
control of markets, higher prices, limitation of output, and relative
or absolute restriction o£ progress in technological efficiency. This
is an element of decline, as it emphasizes the incapacity to develop
fully all the forces of production and consumption. Another element
of decline is monopoly's introduction of factors of rigidity (control of
markets and prices, limitation of competition, resistance to liquida-
tion in depression) into the structure of capitalism, whose basic re-
quirement is the flexibility involved in the free play of economic forces.

Monopoly is identified with another aspect of capitalist decline:
the export of capital and imperialism, the struggle to control foreign
markets capable of absorbing surplus goods and surplus capital. This
surplus of capitalist industry becomes constantly greater and more
menacing as the inner long-time factors of expansion approach exhaus-
tion. It becomes necessary to "industrialize" economically backward
regions to absorb capital and goods (particularly the former) which
are unabsorbable in the home market. Thus capitalism comes increas-
ingly to depend upon exploitation of outer, the international, long-
time factors of expansion. Where the older industrial nations of Europe
once sought foreign outlets mainly for goods, the basis of the older
colonialism, they began after the 1870's to seek outlets mainly for
capital, the basis of imperialism. An increasing amount of capital and
capital goods, produced by the older nations, was absorbed by mining,
communications, public works, plantations, and factories in colonial
and other economically backward regions. These regions, as a result
of industrialization, also increased their imports of consumption goods.
But while the export of capital and imperialism in their early stages
stimulated home industry, by offsetting exhaustion of the inner fac-
tors of expansion, the final result, particularly when the export of
capital became primarily an export of interest "earned" on previously
exported capital, was to slow down the rate of inner economic growth.
Imperialism, moreover, tends quickly to exhaust the international
long-time factors of expansion, and strengthens the tendency of capi-
talism to decline.

Capitalist decline appeared in Europe in the years 1900-14. One
of the factors in the decline was the advance of industrialism in coun-
tries which formerly met with imports their needs for manufactured
goods and capital. The situation was aggravated by the intensification
of competition in the world's markets. While economically backward

The Decline of Capitalism: General Survey 47

countries increased their demands for goods and capital, there were
now many more industrial countries and a larger mass of surplus cap-
ital and goods to supply the needs. This restricted the production of
profits and their conversion into capital, and capitalist decline became
more definite and threatening.

The economic upswing after the i86o's materially improved the
conditions of the workers (the basis of reformism in the trade union
and socialist movements). Now the improvements virtually ceased,
real wages were almost stationary, and permanent unemployment in-
creased, a surplus population for which capitalist industry could not
provide work.

As the output of surplus goods and capital mounted and markets
became relatively still more limited, the struggle of imperialist nations
for control of the world's markets led inexorably to the catastrophe
of the World War. The war clearly revealed the decline, decay, and
reaction of imperialist capitalism. One hundred years earlier, the
Napoleonic wars had an objectively progressive character, an expres-
sion of the lusty youth of capitalism, breaking down surviving feudal
barriers and preparing an economic upswing. The World War ex-
pressed the decadent old age of capitalism. Never did a war have more
progressive pretensions and a more reactionary character. As a result
of the struggle for imperialist power, the war weakened all the Euro-
pean nations and intensified the decline of capitalism: its legacy was
the post-war chronic economic crisis. The war's progressive preten-
sions ("End war!" — "Make the world safe for democracy!") were
mocked by the general reaction it unloosed — including fascism, the
most violent expression of the decline of capitalism, to whose support
it mobilizes all the most sinister and reactionary elements.

But economic and social decHne is a dialectical process. The forces
of a new economic, class, and social synthesis appear alongside the
forces of decline and begin a struggle for mastery. In the midst of
feudal decline the new capitalist order shaped itself and began its
struggle for power. At the basis of the decline of capitalism are the
contradictions and antagonisms arising out of the new social relations
of production, which clash with the old relations of private property
and individual appropriation. These social relations of production,
expressed in large-scale corporate industry and its accompaniments,
produce monopoly capitalism and imperialism, but they are also an
objective socialization of industry which is the basis for socialism and
the coming to power of the working class. The World War led to
the conquest of power by the working class in Russia, to revolutionary

48 The Decline of American Capitalism

struggles in Europe and among colonial peoples — an indication of
capitalist decline emphasized and aggravated, particularly during the
most disastrous of depressions, by the building of socialism in the
Soviet Union. And to combat decline and revolution, the capitalist
class resorts to fascism, the complete repudiation of all the ideals for
which capitalism fought during its revolutionary youth. . . .

In its origins, growth, and decline, American capitalism has always
been bound up with the capitalism of Europe. They have been dif-
ferent, yet the same; the peculiarities of American capitalism have
merely (but this is important!) affected the scope and tempo of its
growth and decline.

American civilization arose out of the revolutionary youth of capi-
talism. The colonial settlers were thrust forth by the mass migrations
set in motion by the transformation of feudalism; they were overseas
builders of the new order being created in Europe. (The early Puri-
tans were not the sanctimonious weaklings pictured by the wishy-washy
esthetes of to-day, but bourgeois rebels in whose blood was the iron
of Cromwell's revolutionary vigor.) Not only were the colonies a
product of revolution, they secured their independence through revo-
lution, and the capitaHsm of the new nation consolidated its power
in the essentially revolutionary struggle of the Civil War and
Reconstruction.

American capitalism, unlike the European, was not fettered by
feudal hangovers or compromise with the nobility. The great colonial
landed estates, which attempted to introduce feudal relations, were
undermined by, because dependent upon, the commercial revolution;
they could not survive in the new world of unrestricted freedom of
enterprise (except in the South, where Negro slavery altered the situa-
tion and where pre-capitalist conditions were allowed to linger after
northern industrial capitalism consolidated its political power in the
Civil War and Reconstruction). Bourgeois individualism and democ-
racy developed more freely and fully than in Europe. An almost "pure"
capitalist ideology' arose, which permitted and justified unrestricted
exploitation and accumulation. Feudal hangovers, class and ideolog-
ical, measurably restricted capitalist development in Europe; even in
England, where the aristocracy, more than elsewhere, merged into
the new ruling class. Feudal elements favored "reforms" in order to
strike at their capitalist rivals; certain aspects of industrialism were
condemned and regulated, and ideas of the absolutist state interfered
with freedom of enterprise. (The earlier absolutist state, however, had
aided the development of capitalism, and it later did so again in Ger-

The Decline of Capitalism: General Survey 49

many and Japan.) American capitalism suffered from no such restric-
tions. The government let enterprise alone, except where it helped —
with tariffs and with grants of money and public lands to railroads,
turning over the nation's vast natural resources to private enterprise.

The American economy and the American dream were greatly in-
vigorated by the renewed expansion of the frontier. But there have
been other frontiers in history, yielding other results. The frontier
was one of the factors shaping the sectional forms assumed by some
of the underlying economic and class interests and class struggles;
this was important, but only in the peculiar forms it gave to the com-
plex of interests and struggles in a capitalist economy. It is doubtful
if pioneer life, except in the sense of personal enterprise and change,
was marked by any great individualism; but the frontier strengthened
the individualism of American life by its multiplication of economic
opportunities — free land, the rise of petty industrial enterprise after
it began to lag in the older regions, the impulse given to rising. While
the frontier had some direct influence in shaping classes and ideology,
its major significance lay in its influence on the growth of capitalism,
in its contribution to the long-time factors of economic expansion.
Exploitation of the inner continental areas and resources quickened
the tempo and enlarged the economic basis of American capitalist
development. Without this, however, the frontier would have been a
totally different thing, restricted in scope and results. For capitalist
development provided the markets for the agricultural (and mining)
products of the frontier; and, incidentally, opportunities for farmers*
sons to rise in the swiftly growing urban centers.

In one of its most important aspects the frontier meant the expan-
sion of agriculture. The exploitation of agriculture is inseparably
associated with capitalist growth: it provided a labor supply, cheap
food and raw materials, and markets, and it bore the brunt of the
costs of industrialization and accumulation in their earlier stages. In
the industrial nations of Europe (particularly England), the pos-
sibilities of expansion in agriculture were quickly exhausted, making
necessary an increasing export of manufactured goods and import
of agricultural products. In the United States, agriculture was continu-
ously expanding, aided by the inflow of European labor. The number
of American farms rose from 1,449,000 in 1850 to 5,737,000 in 1900,
their acreage from 293 milHon to 838 million, and their value from
$3,967 million to $20,439 million; the value in 1900 included $4,306
million of buildings and equipment.^ This great agrarian develop-
ment was a tremendous factor in the upswing of American industry

50 The Decline of American Capitalism

and prosperity. In 1879 the large exports of wheat, the result of a
serious grain shortage in Europe which created an increased demand
and higher prices for American wheat, played an important part in
the revival and upward movement of prosperity.* The farmers bought
large amounts of capital goods in the form of agricultural equipment.
They created new markets for manufactured consumption goods.
And they provided the bulk of the exports to pay for the imports of
capital and goods which stimulated the rapid expansion of American
industrialism. The fact that capitalist industry gained more from the
expansion of agriculture than did the farmers was the cause of the
agrarian revolts in the 1870's— 90's.

Another aspect of the renewal of the frontier and the resulting ex-
pansion of agriculture was the construction of railroads on a large
scale. This was a most important factor in the movement of produc-
tion, accumulation, and prosperity. Railroad mileage rose from 35,085
in 1865 to 177,746 in 1895; capitalization rose to $10,347 million.^
Most of the increase was due to construction of the transcontinental
railroads, which depended mainly upon the transportation of agricul-
tural (and mining) products. Railroads absorb large amounts of
capital goods. The construction of railroads in economically unde-
veloped countries is one of the main objectives of the export of
capital and imperialism; it aroused the most bitter pre-war imperialist
antagonisms (China, the Bagdad Railway, etc.).

Expansion of agriculture and construction of the transcontinental
railroads were bound up with the growth of population and of cities,
which proceeded on a much greater scale than in Europe. Population
rose from 31,502,000 in i860 to 92,267,000 in 1910 (including 23,000,000
immigrants). Cities rose from 141 to 788 and their population from
5,000,000 to 35,000,000, or from 16% to 38% of the total population.^
This growth, which required construction materials, traction equip-
ment, and other capital goods, and provided new markets, enor-
mously stimulated the development of capitalism.

Thus the frontier, and its continental areas and resources, was
directly connected with the long-time factors of economic expansion.
It permitted an increasing output and absorption of capital goods
because of the industrialization of new regions. The expansion of the
frontier depended upon the development of agriculture (and mining),
which in turn depended upon the markets of the industrial East-
ern states and of Europe. And the frontier came to an end when in-
dustrialization was measurably complete.

But while it existed, the frontier was one of the major peculiarities

The Decline of Capitalism: General Survey 51

of American capitalism. Its conditions of life renewed economic op-
portunity and progress. It provided almost unlimited possibilities for
industrialization and the accumulation of capital and created con-
stantly larger mass markets. The industrial Eastern states exported
manufactures to the newly settled regions and imported raw materials
and foodstuffs. This permitted an enlargement of the scale of produc-
tion and an increasing realization of profit and accumulation of cap-
ital. Industries sprang up in the new regions, both local enterprises
and branch plants of Eastern enterprises, which meant more absorp-
tion of capital goods, more realization of profit and accumulation
of capital. The expansion of the frontier was a perpetual re-birth of
capitalism, energizing its upward movement, strengthening capitalism
economically and ideologically; and its continental areas and resources
performed, up to the World War, the same economic function that
colonialism and imperialism did for the industrial nations of Europe.
The upswing of capitalism invigorated the ideal and the reality of
the "American dream." Elements of this dream, animating most of the
early colonists, who were rebels against the feudal order, acquired
new forms and vigor in the new world. They were consolidated by the
American Revolution, vitalized by social-economic development on
an almost wholly capitalist basis and by the "opportunity" and "self
help" of the frontier and its influence in accelerating economic de-
velopment. The American dream was an ideology compact of ten
major elements:

1. Liberty: The right of the individual to live his own life in his
own way (of which the original expression was freedom of con-
science) ; tolerance as a way of life.

2. Democracy: The right of the people to decide their own destiny
in their own interests and in their own way; faith in the creative
initiative and action of free men and women.

3. Equality: The right of all to an equal share in the fruits of
progress regardless of origins; differences of racial or biological inheri-
tance do not justify social inequality and class oppression or exclude
any people from the highest forms of civilization.

4. Mass well-being: The right of all to the good things of life,
particularly the right of the mass of the people to share, and share
increasingly, in the conquests of industry and civilization : the aboHtion
of poverty.

5. Opportunity: The right to an equal share in economic and politi-
cal opportunity, whose perpetual rebirth was assumed, unrestricted by
origins; in its more subtle forms, an aspiration after higher things.

52 The Decline of American Capitalism

6. Education: The right to an education and faith in education as
a means for personal improvement and progressive solution of social
problems; the creator o£ new and finer ways of life.

7. No class stratification: The right to move freely from one class to
another, including a disregard of class distinctions which colored
American life and made it impatient of traditional restraint.

8. Limited government: The right to minimum interference by
the state and faith in the creative action of the people; opposition
to bureaucracy as a heritage of monarchy.

9. Peace: The right to peace and the peaceful settlement of disputes;
monarchical tyranny means war, while democracy moves toward uni-
versal peace.

10. Progress: The right and possibility of unlimited progress, the
synthesis of all the preceding ideals; a steady, inevitable upward move-
ment to new and finer fulfillments.

Now these elements of the ideology of the American dream were not
peculiarly American. They are easily recognizable as ideals of the
bourgeois revolutions and of most of the liberal and socialist reform-
ism in pre-war Europe. But there was one peculiarity of major
importance: nowhere were the ideals more largely realized than in
the United States, because of the relative freedom and mobility created
by the rapid expansion of industry and the frontier. True, the realiza-
tion was woefully limited, the ideals exploited by the ruling class in its
own interests and degraded by the buccaneers of industry, finance,
and politics. Yet the ideology was not mere make-believe, not wholly
tawdry. It could not have arisen in a slave or feudal society. It ex-
pressed many real achievements and, still more, the possibilities of
social progress. The ideology was real enough to dominate the labor
and agrarian revolts of the i87o's-9o's. But it must be remembered that,
in one decisive aspect, the development of capitalism is a perpetual
struggle against its early revolutionary ideals, as they are a tempo-
rary and not always an inseparable accompaniment of capitalism.
Thus the development of American capitalism was a perpetual strug-
gle against and increasing limitation and degradation of the ideals of
the American dream. This appeared clearly after the Civil War and
still more clearly in 1900-1914. For in spite of its great expansion and
its peculiarities, which invigorated the American dream, American
capitalism was not immune to the general laws of capitalist growth
and decline. Around 1900, capitalist monopoly became ascendant, the
frontier met its geographical and economic limits and was no more,

The Decline of Capitalism: General Survey 53

and the export of capital and imperialism began to develop. There was
a slackening and decline in the rate of economic growth and a cor-
responding restriction of opportunity, creating a minor crisis of the
American dream, in which opportunity had been the unifying element.
The crisis was not acute because of comparative agrarian prosperity,
the growth of the new middle class, and the gains made by the privi-
leged minority of skilled workers. It was acute enough, however, to
produce a marked drift toward socialism. The crisis was overcome
or evaded by the World War and the prosperity of 1923-29, But this
prosperity not only produced the usual cyclical depression, it simul-
taneously intensified, while temporarily overcoming, the elements of
the decline of capitalism. But the decline now creates a major crisis
of the American dream. At the moment when the high development of
the productive forces makes possible a fuller realization of the tra-
ditional ideals of the American dream, a condition arises which means
a complete reaction against even the partial realization of those ideals,
an increasing limitation of opportunity and progress.*

The crisis of the American dream is an expression of the crisis of
the economic order, of the decline of capitalism. In one of its imme-
diate aspects, the decline appears clearly in the program of the gov-
ernment to spend over $10,000 million to overcome the crisis and revive
prosperity! The Hoover Administration added $4,000 million to the
national debt, the Roosevelt Administration over f6,ooo million in one
year. By the end of the fiscal year 1934 the national debt had risen to the
war-time peak of $26,500 million. Another $7,000 million will be
spent in 1934-35, an estimate based on optimistic hopes of recovery.
Public works will absorb $3,300 million, farm relief $2,000 million
(including over $750 million to pay for acreage and crop reductions).
On January 31, 1934 the Reconstruction Finance Corporation had
outstanding $3,428 million, mainly in loans to corporations, includ-
ing $1,000 milhon for the payment of bank stocks bought by the
government.^ Only a part of the money is spent on relief or "made
work" projects. Most of it directly, and all of it indirectly, is spent to
prop up the sagging foundations of the capitalist economy: to restrict
agricultural production, to sustain tottering banks, to permit railroads
to buy equipment, to aid industrial and utility corporations, to protect
capital investment and profits, to allow payment of interest and other

* This subject is discussed more fully in Chapter XXV, "The Crisis of the American
Dream."

54 The Decline of American Capitalism

fixed charges.* Is there an American crisis! The expenditures of pub-
lic money, involving a tremendous increase in the burden of taxation,
debts, and interest, is part of a program based on the conviction that
industry cannot revive and prosper without the artificial stimulant of
state financial aid. Even if prosperity returns on any considerable
scale, ^d corporations repay the loans, the burden on profits will be
great, and still greater on the people at large in higher taxation (for
most of the money is spent outright). If, as is most likely, prosperity
does not return on any considerable scale, and there is a lower level
of economic activity and income, the burden of taxation will be heart-
breaking, for corporations will repay little if any of the public money
they now receive. It will be worse if inflation is resorted to. And most
of the burden will be thrust upon the workers (including farmers and
professionals) : already there are sales taxes and lower real wages, and
eventually there may be direct taxes on wages, as in some European
countries.

State financial aid to sustain tottering private industry is the major
aspect of the state capitalism represented by the creations of Niraism,
but which may assume other institutional forms. This is definite
evidence of the decline of American capitalism. It is exactly what
governments have been doing in France and England, on a larger
scale in Italy and Germany. In spite of differences in political forms,
the same state-economic measures are adopted under the pressure of
capitalist decline. Pre-fascist German governments poured public
money into industry; the Nazis do the same. Fascist Italy issues state
loans "for relief of private companies which find themselves in diffi-
culties because of the depression." The American Reconstruction
Finance Corporation serves as an organizational model for the Italian
Industrial Institute, but its policy was already being pursued by the
fascist government.^ A public-works program is the backbone of
"recovery" efforts in Italy and Germany; to a lesser extent in France
and England, where, however, it is increasingly urged. Highway-
building is stressed, although new roads are largely unnecessary and
include construction of "luxury" automobile super-highways. "In Ger-
many the present roads might be able to carry ten times the present
traffic. Only when viewed most optimistically does it seem possible

* In 1933 the von Papen government in Germany, in an attempt to stimulate revival,
gave private industry what amounted to a subsidy of 750 million marks to be spent on
capital goods. But most of the money was used by the recipients to pay debts. Gerhard
Colm, "Why the 'Papen Plan' for Economic Recovery Failed," Social Research, February,
1934. P- 93-

The Decline of Capitalism: General Survey 55

that sufficient traffic will develop to liquidate the present cost of the
scheme." ^ And the "recovery" program of Niraism depends in large
measure upon public works. Thus the American government resorts
to the state-economic measures characteristic of the decline of cap-
italism in Europe. And this decline only a few years ago was con-
sidered the lot of lesser breeds outside the law — the law of American
prosperity everlasting!

Summary

JLn its immediate aspects the American crisis is an outcome of the
depression and of the inability to restore prosperity on any consider-
able scale. It mocks the pre-depression claims of prosperity everlasting.
In its larger aspects the crisis is an outcome of the decline of capitalism.

Prosperity under capitalism depends upon the making of profits
and their conversion into capital. The higher the profits and the
lower the wages, the greater is the accumulation of capital. This lag
of wages behind profits, and the resulting lag of mass consumption
behind production, is a condition of accumulation. But it eventually
upsets the balance between production and consumption, and creates
recurrent crises and depressions. This has always been so and must
always be so under the social relations of capitalist production.

While prosperity always broke down, every depression was succeeded
by a new upsurge of prosperity because of the long-time factors of
economic expansion. These factors — mechanization of old industries,
development of new industries, industrialization of new regions —
permitted an increasing production and absorption of capital goods,
the basis of capitalist prosperity and accumulation. As, however, all
the long-time factors of expansion approach exhaustion, capitalism
begins to decline because it is no longer able to produce and absorb
an increasing output of capital goods. The decline of capitalism is
an expression of old age, of a crisis in its historical development:
one social system grows into another. A new social order is in the
making. But Niraism, and the state capitalism of which it is a form,
does not represent the new order; its objective is to save the tottering
old order of capitalist exploitation.

As prosperity depends upon the making of profits and their conver-
sion into capital, labor may or may not share in its gains. When labor
did share, it was meagerly; and there were whole periods in which
prosperity was accompanied by stationary or falling real wages and
mass consumption. But the tendency, at least, was upward. Now,
in the epoch of the decline of capitalism, wages and mass consumption
must tend downward; in other words, they experience an absolute

56

Summary 57

fall, where in the past the fall was only relative to the rise in pro-
duction and profits.

The decline of American capitalism is conditioned by the exhaus-
tion of the inner long-time factors of expansion. This exhaustion,
which is relative and wholly capitalist, was brought to a head by
the prosperity of the "Golden Age" of American capitalism. It as-
sumed the form of overdevelopment of productive forces, saturation
of capital plant, monopoly, the export of capital, and imperialism.
The legacy was a restriction of the opportunities for an increasing
output and absorption of capital goods, for the accumulation of capital.
Thus, to understand the decHne of capitaUsm, an analysis is necessary
of the prosperity of 1923-29, which involves an analysis of the funda-
mentals of capitalist production. And the starting point of the analysis
is the movement of profits and wages, which conditions both the
upswing and the decline of capitalism.

PART TWO

Prosperity, Profits, and Wages

Introductory

JIn the claims o£ Niraism, of state capitalism, reappear, in slightly dif-
ferent form, the basic claims of the pre-1929 mythology of prosperity.
The older prophets insisted that under the "new capitalism" wages
necessarily secured large gains from increasing production and pro-
ductivity; the antagonism between wages and profits had been ended,
the capitalists "recognizing" that high wages and high profits are
inseparable. The prophets of Niraism also insist that high wages
are profitable to the capitalists: they want to "raise" wages and
"control" profits in the interest of prosperity and of assured and higher
profits. Thus President Roosevelt claims that "fair wages and fair
profits" is the aim of Niraism.^ The identity between the old and the
new has been thus stated by a liberal critic:

"Both the plan for industrial codes and the Blue Eagle scheme
were predicated on the assumption that capital would make volun-
tary sacrifices for the benefit of labor, in a spirit of patriotic endeavor,
and also because the capitalist, if the scheme worked, would profit
enormously from the increase in business which would then ensue.
It should be noted that this plan contemplated no fundamental reor-
ganization of our moribund economic system. Its central feature was
an application of the old Hoover-Ford doctrine of high wages, exer-
cised in a time of desperate economic distress and not, as it was
originally conceived, when ample profits were being produced."^

There is this difference: The pre-1929 apologists of prosperity in-
sisted on the "unfettered" economic action of capitalism; the apolo-
gists of Niraism claim that the government will "control" industry
to compel the capitalists, in their own interest, to "raise" wages and
"limit" profits, and thus assure ultimately higher profits. But in prac-
tice both assumptions mean the same thing: It is possible to reconcile
the antagonism between wages and profits if only the capitalists are
convinced that higher wages mean higher profits and continuing
prosperity.

The demand for government "control," which distinguishes the
prophets of Niraism from their predecessors, is very significant. One
result of the decline of capitalism is the necessity of increasing state

61

62 The Decline of American Capitalism

intervention to prop up the sagging economic order. This is the real
purpose of Niraism and state capitalism: all else is mere ballyhoo.
For intervention and "control" are by the capitalist state; they pro-
ceed, in spite of minor institutional changes, on the basis of the
fundamental relations of capitalist production, in which profits and
the accumulation of capital are the decisive factors. Profits control
capitalist industry and must control intervention by the capitalist
state. The state capitalism of the imperialist nations of Europe has
not limited profits in general or raised wages. To understand why,
and why there must be a similar American experience, it is neces-
sary to analyse the relation of profits and wages to one another
and to capitalist production, prosperity, and accumulation. The relation
is clearly revealed in the economic movement and changes of 1920-29.

CHAPTER IV

Profits and Prosperity

Jl HE ending of the World War in 191 8 produced an economic reces-
sion, followed by an upward movement. A heavy export of capital
and goods was the decisive factor in post-war prosperity. Stricken by
war's destruction, intervening in Soviet Russia, and threatened by
the revolutionary action of its own workers, capitalist Europe mort-
gaged itself, kept on borrowing in the United States and imported
large amounts of goods. American exports in 1919—20 were the
largest in history: $16,148 million, with an excess of exports over
imports of $6,965 million.^ (This economic intervention in Europe
was "our" major contribution to the struggle against revolution.)
But production in 1919—20 was lower than in 1918;* prosperity was
essentially speculative, based upon rising prices and foreign demand.
Profits rose while real wages were almost stationary. Although pro-
duction fell, an overproduction of goods developed in particular lines
because of excessive output resulting from competition and in all
lines because sharply rising prices redistributed income and reduced
mass purchasing power. The equiUbrium between production and
consumption was upset. Prosperity crashed.

Prosperity revived in 1922, as in all previous depressions, by the
action of economic forces independent of the planful intervention of
the masters of industry and finance. This action assumes the form
of liquidation of prices, wages, accumulated consumption goods and,
primarily, of capital and capital claims (precisely as in 1929-34) : it
resembles the blood-letting of medieval medicine. The most important
aspect of liquidation is the wiping out of capital and capital claims,
modifying the disproportionate accumulation of capital which set in
motion the forces of depression. Liquidation reaches a point where
the economic equilibrium is restored, on a lower level, and produc-
tion, consumption, and capital accumulation begin to revive. An in-
crease in the production of consumption goods, because of depletion
of accumulated stocks, may be a minor cause of revival. The major

* The index of physical volume of production in manufactures was 104 in 191 8,
98 in 1919 and loi in 1920. A. M. Mathews, "The Physical Volume of Production in
the United States," Review of Economic Statistics, July, 1925, p. 208.

63

64 The Decline of American Capitalism

cause of revival is a renewed demand for capital equipment, either

for replacements or new industries or both. New consumer purchasing

power is created. Industry begins to move upward, slowly and plan-

lessly.

The speed of revival and the scope of recovery and prosperity de-
pend upon an increasing output of capital goods and the opportunities
it provides for capital investment and accumulation. This in turn
depends upon other than the ordinary cyclical factors, upon the de-
velopment of new industries and unusual expansion of old industries.
In the United States after the Civil War, accumulation was invig-
orated by the mechanization of old and the growth of new industries,
particularly the railroads, and by industrialization of agrarian and
frontier regions. In early nineteenth-century England, prosperity was
identified with expansion of the textile industry and later of the
iron and steel trades, while expansion of the electrical industry pro-
duced an unusual prosperity in the Germany of 1 890-1 905; another
factor of expansion was the export of capital (and capital goods)
to industrialize colonial and other economically backward regions.
Only these long-time factors of economic growth stimulate the output
of capital goods and insure an increasing accumulation of capital.

An unusual feature of the depression was the steadiness of machin-
ery output, which ordinarily drops severely. While output dropped
from $4,768 million in 1919 to $3,235 million in 1921, there was no
great drop as prices fell; output rose in 1922 and was $4,727 million
in 1923.^ The demand for machinery modified the depression and
encouraged revival, and was mainly due to efforts to raise the pro-
ductivity of labor, which rose substantially. There were, apparently,
fewer of the "postponable" expenditures on capital goods which ag-
gravate depression. . . . The demand for machinery was strengthened
by an upswing in construction, the industry which led the revival.
Unlike industry in general, construction was not overproduced, but
had accumulated a large shortage. Construction was practically sta-
tionary in 1 914-16, and in the following four years averaged 28%
below 1913. In 1921 construction, which had decreased one-half the pre-
vious year, regained all its losses and slightly more, and in 1922 was 35%
higher than in 191 3, increasing by nearly $1,000 million;^ the increase
was mainly in industrial and commercial structures, essentially an
output of capital goods. . . . Railroads, whose ordinary requirements
had been neglected during the period of Federal control, increased
their capital expenditures to $1,059 million in 1923 and $3,996 million
in the five years 1922-26.* . . . The depression drop in the output

Profits and Prosperity 65

of automobiles was small; output rose in 1922 and was $3,164 million
in 1923, nearly $1,000 million more than in 1919 and a twofold in-
crease considering the fall in prices.^ . . . The revival was essentially
a product of the increasing output of capital goods, but it was strength-
ened by an unusual development: a substantial rise in real wages,
which increased mass purchasing power and consumption. Consump-
tion was 6.5% higher in 1923 than in 1920,® an unparalleled increase,
stimulating production and, more important, the output of capital
goods. After 1923 the upward movement in real wages and mass
consumption slackened and came practically to a standstill: while
total production in 1922-29 increased an average of 4.1% yearly,
capital goods increased 6.4% and consumption goods only 3.7%.^
Accumulation, as usual, outstripped consumption.

Prosperity was sustained by the upward movement in the output
of capital goods, by increasing opportunities for the accumulation of
capital. Construction moved steadily upward:* it was 31% higher
in 1929 than in 1922, scoring an average yearly increase of 6.1%;
total construction was $48,859 million, an average of $6,100 million
yearly.® Automobile output (wholesale value) averaged over $3,000
million yearly in 1923-28, rising to $3,719 million in 1929; a consider-
able part of the output consisted of capital goods : registrations of motor
trucks, taxicabs, and buses increased more than private cars, while
the wholesale value of motor trucks alone rose from $317 million in 1923
to $595 million in 1929.^ The lessened capital expenditures of the
railroads was partly offset by the rise in capital goods represented by
increasing commercial use of the automobile and airplane. The drive
to raise the productivity of labor (to increase profits) not only stimu-
lated the demand for more industrial machinery but resulted in an
increasing electrification of industry, the extent of which rose from
56% in 1919 and 67% in 1923 to 82% in 1929; capital investment in
the electric power industry was $12,500 million in 1929 compared with
$5,000 million in 1922.^° The output of electrical machinery and ap-
paratus rose from $1,293 million in 1923 to $2,273 million in 1929.^^
Expansion in new or comparatively new industries absorbed large

* The average yearly increase in apartments and hotels was 3.7%, in one and two-
family houses 5.1%, in commercial and industrial structures 8.1% and 9.3% respec-
tively, and in public works and utilities 11.4%. In 1927-29 the construction of indus-
trial buildings increased 50%. Frederick C, Mills, Economic Tendencies in the United
States (1932), pp. 264-66. The upward movement in construction was sustained pri-
marily by the demand for structural capital goods. The lack of this demand has
forced adoption of the government's public works program in an effort to fill in the gap.

66 The Decline of American Capitalism

amounts of new capital — the moving picture, radio, rayon, chemical,
aviation, mechanical refrigeration, and power laundry industries,
whose combined value output in 1929 exceeded $1,500 million. This
expansion made "large demands upon construction — industrial and
commercial structures, "movie palaces," and garages and service sta-
tions; it also made large demands upon machinery, the output of
which rose from $4,727 million in 1923 to $6,964 million in 1929.^^
The expansion of new or comparatively new industries is particularly
important since it demands more capital expenditures than similar
expansion in old industries.

An increasing output of capital goods (not consumption goods) is
the decisive factor in capitalist prosperity. It provides for the accumu-
lation of capital and multiplies the capitalist claims upon labor, pro-
duction, and income. But this involves a fundamental contradiction:
realization of profit depends in final analysis upon the circulation
of commodities, upon consumption, which accumulation tends to re-
strict. The stimulus to prosperity in the production of capital goods
is twofold: it increases employment, wages, and profits (mainly
profits) and creates consumer purchasing power, but for a time makes
no demands or only slight demands upon consumer purchasing power
to absorb new consumption goods. The danger to prosperity is three-
fold : the output of capital goods may represent excessive accumulation
of capital, it may be concentrated in particularly profitable industries
whose expansion becomes disproportionate in relation to other in-
dustries, and eventually the larger production made possible by the
new capital goods outstrips the growth in markets and consumption.
The output of capital goods begins to fall and wages, purchasing
power and consumption are restricted. Prosperity crashes.

Two other factors affected American prosperity in 1922-29: the
agricultural crisis and the recasting, by the World War, of inter-
national economic relations in favor of the United States.

The sharp fall in agricultural prices, a result of the post-war defla-
tion which threw most of the burdens of deflation upon the farmers,
contributed greatly to capitalist prosperity — ^by increasing real wages
and releasing urban purchasing power for manufactured goods and
by lowering the cost of raw materials. In spite of much lower incomes
the farmers were forced by the low prices of agricultural products
to increase productivity with improved methods and mechanization:
the output (less exports) of agricultural machinery rose from $101 mil-
lion in 1923 to $137 million in 1929.^^ Most farmers did not share in
prosperity. But not only was the agricultural distress no bar to pros-

Profits and Prosperity 67

perity, it was one o£ the contributing causes: the final proof o£ the
decHne and hopeless state of American agriculture.

Where the World War aggravated Europe's economic decline, it
contributed to the upsurge of prosperity in the United States by its
stimulus to old and new industries, its creation of shortages, and its
opening up of new foreign markets. From the American angle, the
most important result of the war was the redistribution of world
power in favor of the United States and the economic decline of its
competitors. The American share of world exports rose from 12.3%
in 1913 to 15.6% in 1928; the European share decHned from 55.2%
to 46% and the British share from 13.9% to 11.2%.^* American ex-
ports (mainly manufactured goods) rose from $3,971 million in 1922
to $5,157 million in 1929; a favorable export balance of $4,850 million
piled up in 1923—29. The increase in exports was bound up with a
growing export of capital; American foreign investments increased
$6,293 million in 1923-29/^ Imperialism, new foreign markets for
surplus capital and goods, created new means for the making of
profits and their conversion into capital, for accumulation, and sus-
tained prosperity for a time by lessening the demands upon the
home market to absorb goods and capital. Increasingly the world
market took the place of the frontier and of its long-time factors
of economic expansion; but the experience of one is bound to be
repeated by the other.

Rising investment, production, and accumulation were accompanied
by a rising mass of profits. Profits in manufactures are the natural
starting point of an analysis of the movement of profits (Table I).
In 1929 profits were 22.9% higher than in 1923, total wages only 6.1%
higher. If the two years of minor cyclical depression 1924 and 1927,
are excluded, profits in 1925-29 averaged 9% higher than in 1923.
Officers' salaries, a large part of which should be considered profit, rose
steadily until in 1929 they were 16.4% higher than in 1923. The in-
creasing productivity of labor was accompanied by higher profits
and lower wages. But for the six years as a whole the profits of
manufacturing corporations averaged only 1% higher than in 1923.
(The rise was much greater, however, in comparison with 1922.)
This seems to involve a contradiction — the productivity of labor and
surplus value rose considerably, yet profits apparently failed to rise
as much. The contradiction dissolves upon analysis and reveals the
welter of contradictions and antagonisms inherent in capitalist
production.

Corporate profits are usually understated. There are all sorts of

68 The Decline of American Capitalism

TABLE I

Profits, Salaries, and Wages, Manufactures, jg2^-2g

CORPORATE

officers'

TOTAL

YEAR

NET PROFITS

INDEX

SALARIES

INDEX

WAGES

INDEX

(millions)

(millions)

(millions)

1923

$3,872

lOO.O

$960

lOO.O

$11,009

lOO.O

1924

3,166

81.8

970

lOI.O

10,502

95.4

1925

3,877

100.2

•

*

10,730

97.5

1926

3,910

lOI.O

•

•

11,466

IO4.I

1927

3,431

88.1

*

•

10,849

98.5

1928

4,330

111.8

1,107

II5.3

10,366

94.2

1929

4,760

122.9

1,117

II 6.4

11,684

I06.I

* Not available.

Source: Net profits (corporations reporting profits, less taxes and intercorporate
dividends) and officers' salaries (including bonuses and other compensation) — Bureau
of Internal Revenue, Statistics of Income; w^ages — 1923, 1925, 1927 and 1929, Depart-
ment of Commerce, Statistical Abstract of the United States, 1931, p. 813, other years,
W. I. King, The National Income and Its Purchasing Power, p. 132, King's estimates are
slightly higher than the Census figures. Wages are for all manufacturing enterprises,
while profits include only incorporated enterprises, but this does not affect the trend.

devices for concealing profits. One device is to make excessive allov^-
ances for depreciation to evade taxation. This was encouraged, during
the "Golden Age" of American capitalism, by "liberalization" of the
corporation income-tax law; the allowances in manufactures rose from
$1,424 million in 1923 to $2,017 million in 1929,^^ a considerably greater
increase than in capital equipment. Many corporations inflated the
nominal value of their assets to permit larger depreciation allowances.
Manufacturing enterprises, moreover, spent large sums on capital
equipment which were charged to operating costs and do not appear
as realized profits. These expenditures, which increase the productivity
of labor and production, are capitalized surplus value.* Another por-
tion o£ profits was absorbed by the increase in officers' salaries; this
form of exploiting corporations is flagrantly revealed in the "bonus"
system by which the higher officers extort an additional "compensation"
of millions yearly. At least one-third of salaries represent profits.

The distribution of profits (and of prosperity!) is always uneven.
It was particularly uneven in 1923-29 because of the many and rapid
changes in industries, technical equipment, and consumer buying

* Such sums spent on capital equipment do not appear in surplus, which rose from
$13,060 million in 1923, to $19,465 million in 1929. Bureau of Internal Revenue,
Statistics of Income, 1923, p. 63; 1929, p. 332. Corporate savings or surplus are an
impersonal, social form of the accumulation of capital.

STOCK fAtCOM£: /6%

2^0

aao

200

ISO

160

PR0Fin:i2%
mOES'. 0S%

rr

fiiVERAQE yeARLY
RAre OF //VCR£ASE

d

STOCKHOLDERS'
CASH INCOME 1 .'
SI L>J-

pijjEW CAPITAL 'SSUESf-^ / /

H CORPORATE PROFlTSh

INDUSTRIAL

rj 5 •

\<\ll +4.>*»JW iqiS" 19ZG l<12.7 WZ« MM

V

II. PROSPERITY IN ACTION— 1923-29.

70 The Decline of American Capitalism

habits, and of the resulting intensified competition. There were many
laments about "profitless prosperity." Some industries were severely
depressed while others were exceptionally prosperous. The automobile
industry increased its profits an average of 22.5% yearly, machinery
14.9%, and chemicals and drugs 12.3%;^^ automobile super-profits
were characteristic of the newer industries. But high profits among
the newer industries was partly conditioned by lower profits among
the depressed older industries, whose losses were frequently disastrous.*
Profits were unevenly distributed, moreover, as between smaller and
larger corporations. The movement of increasing technological effi-
ciency, production, and competition, resulted, as always, in greater
industrial concentration and centralization of corporate control: in
1923 the largest 1,240 manufacturing corporations received 64.9% of
all corporate net income, while in 1929 the largest 1,289 corporations
received 75.6%.^^ An increasing number of corporations, mainly the
smaller, reported deficits — 34% in 1919, 41% in 1923, and 47% in
1929.^^ These deficits, which depressed the mass of profits, are a
condition of capitalist production and prosperity and of the profits
of other corporations.

A characteristic of capitalist production is that its drive for larger
profits creates a series of antagonisms which limit the realization of
profits. Output increases more than profits, because capitalist produc-
tion tends toward an absolute growth of the productive forces regard-
less of the capacity of markets and of the development of consuming
power. Competition is intensified and prices fall to levels which yield
small profits or no profits — one result of the higher productivity of
labor, which simultaneously increases surplus value and sets in motion
forces which prevent its complete realization. As competition is inten-
sified by the higher productivity of labor and larger output, which
outstrips markets and consumption, there is an increase in the costs
of distribution, of merchandising and advertising, costs which are a
charge upon surplus value and cut into profits: in 1923-29 that part
of "value added by manufacturing" represented by overhead costs
increased more than profits (and wages). The drive for larger profits
creates a final antagonism : it develops the forces of cyclical breakdown

* While profits (including intercorporate dividends and before payment of taxes)
increased in 1922-29 an average of 7.4% yearly for all manufacturing corporations,
profits decreased among 815 corporations in 28 industries, including textiles, canned
goods, lumber, paints, glass, textile machinery, and railroad equipment; the increase
in the profits of the more prosperous corporations averaged 9.8% yearly. Mills, Eco-
nomic Tendencies, p. 401.

Profits and Prosperity 71

by increasing productivity, production, and profits more than wages
and consuming power, disturbing the balance between production
and consumption and between one industry and another. The con-
sequent disproportions interrupt prosperity with minor depressions,
and eventually prosperity collapses into a major depression. Profits in
manufactures fell considerably in the minor depression of 1924 and
in the minor depression of 1927, which severely lowered the yearly
average of profits in 1924-29. Depression is one of the most drastic
means by which capitalist production limits the realization of profits.
While profits in manufactures did not rise as much as production,
the productivity of labor, and surplus value, profits as a whole rose
more substantially. The general rise was larger than in manufactures;
for surplus value, which exists originally as a definite portion of unpaid
labor, as a surplus product, is finally realized only in the process of
the circulation of commodities. The transactions of the market do
not produce or increase surplus value, but they distribute and ap-
portion it. All sorts of queer things now happen which are normal
under capitalism. Not only may the industrial capitalist realize as
profits only a small portion of surplus value or none at all, if prices
are unfavorable, but a struggle occurs over the division of the surplus
value extorted from labor, and an increasing part of it may become
the profits of the non-industrial capitalist. The profits realized by the
individual capitalist or corporation depend considerably upon trickery,
the chances of the market, and other similar circumstances. Financiers
may plunder the manufacturing corporation, speculators may seize
its profits. Chain stores compel small manufacturers to sell at prices
yielding low profits and often no profits at all; large manufacturing
corporations (e. g., the automobile industry) pursue the same tactics
with small manufacturers of semi-finished raw materials or parts.
Bank loans may absorb an increasingly larger share of manufacturing
income. Finance and holding companies exploit operating companies
by extortionate "service charges" and other predatory devices: high
profits in the one case arise out of low profits in the other. Thus finan-
cial and speculative capitalists are enriched. The mass of profits accord-
ingly appears only in their final realization and distribution as a whole
(Table II). Total profits rose and rose substantially. The profits of all
corporations are understated, as in manufactures. In addition, inter-
est, as much as profit, is realized surplus value : corporate interest pay-
ments rose from $3,277 million in 1923 to $4,924 million in 1929.^°
Profits in 1929 were 41.1% higher than in 1923, and officers' salaries
29.7% higher. Average yearly profits for 1924-29 were 12.7% higher

72

The Decline of American Capitalism

TABLE

II

The Movement of Profit

s, Salaries, and

Wages,

19^3-^9

CORPORATE

officers'

INDUS-
TRIAL

ALL

YEAR

PROFITS

(millions)

INDEX

SALARIES

(millions)

INDEX

WAGES

(millions)

INDEX

WAGES

(millions)

INDEX

1923

$7,721

lOO.O

$2,575

lOO.O

$18,105

lOO.O

$28,691

lOO.O

1924

6,705

86.9

2,635

102.3

17,200

95.0

29,051

IOI.3

1925

8,413

109.0

*

*

18,083

99-9

30,762

107.2

1926

8,444

109.4

*

*

19,068

105-3

32,604

II3-7

1927

7,851

IOI.7

«

#

18,524

102.3

32,884

114.6

1928

9,921

128.5

3,199

124.2

18,050

99-7

32,235

112.4

1929

10,892

141. 1

3,336

129.7

*

*

*

#

* Not available.

Corporate profits — net profits of corporations reporting profits, less taxes and inter-
corporate dividends. Officers' salaries (corporations) includes bonuses and other com-
pensation. Wages — all wages includes wages paid to farm laborers, servants, and
workers in non-corporate industrial, commercial and service enterprises; industrial wages,
more. nearly equivalent to corporate wages, are the wages paid to workers in manu-
factures, mines, quarries and oil wells, construction, and transportation (railroads,
express, transportation by water, street railways, electric light and power, telephones
and telegraphs).

Source: Profits and officers' salaries — Bureau of Internal Revenue, Statistics of Income
for the respective years; wages — ^W. I. King, The National Income and Its Purchasing
Power, pp. 132-33-

than in 1923. Profits rose more than production and the national income,
and more than wages. The yearly average o£ all wages for 1924-28 was
higher than in 1923; but this is not the true measure of wages in
relation to corporate profits, for it includes the wages of servants and
of workers in non-corporate enterprises, whose profits are not included,
and all of which, however, have large elements of social-economic
parasitism. A truer measure are industrial wages (manufactures, min-
ing, construction and transportation) ; for 1^2^-28 the average of indus-
trial wages was only o.f/o higher than in 192^.

As in the case of manufactures, the distribution of total corporate
profits favored the monopolist combinations of capital; the greater
trustification of industry resulted in a greater concentration of profits:

In 1923, the largest 1,026 corporations, 0.26% of all corporations,
received 47.9% of all corporate net income, an already dominant
concentration.

In 1929, the largest 1,349 corporations, again 0.26% of all corpora-

Profits and Prosperity 73

tions, received 60.3% of all corporate net income, an increase of over
one-fourth in concentration.^^

The concentration of industry in monopolist combinations and the
multiplication of stockholders result in the usurpation of control by
a financial oligarchy, groups of financial capitalists operating by means
of a system of centralization of financial control dominated by the
great banks. Industry depends more and more upon the financial
oligarchy, which consequently absorbs an increasingly larger share
of the surplus value extorted from labor. This v^as particularly marked
in 1923-29:

The profits of non-financial corporations rose from $4,948 million
in 1923, to $5,645 million in 1929, or 14%, the profits of financial cor-
porations (including banks, investment banks, finance and holding
companies) from $870,000,000 to $2,438 million, or 177%, a phenomenal
increase.

The profits of non-financial corporations in 1924-29 averaged 2%
lower than in 1923, the profits of financial corporations 69% higher."

A considerable portion of financial profits, particularly in 1928—29,
was a result of frenzied stock-market speculation, the gains of which
represent both previously appropriated surplus value and claims upon
new surplus value. Finance capital, interested more in the speculative
production of profits than in the production of goods, dominates in-
dustry; the appropriation of surplus value and profits is increasingly
separated from their production.

Corporate disbursements to investors increased greatly. Dividends
(excluding intercorporate dividends) rose from $3,299 million in 1923
to $5,765 million in 1929 and interest payments from $3,277 million
to $4,924 million. Total corporate disbursements in seven years
amounted to $88,000 million. While the average yearly increase in
industrial wages was only 0.5/0, the increase in stockholders' income
was 16.4%.^^ Part of the immense profits was spent on the living
expenses of their appropriators, whose income was further swollen
by extortionate salaries or fees and by speculative profits; but most
of it was invested, used for the production of more profits. The
great mass of available investment capital was enlarged by the profits
of non-corporate business and by the large savings of the middle class
and the small savings of better-paid workers and farmers. (There
was great competition for the "marginal" income of the "common
people." Bankers and brokers shouted: "Save and invest!" Manufac-
turers and merchants shouted: "Spend and make prosperity!") The
enormous accumulation of capital exerted tremendous pressure on the

74 The Decline of American Capitalism

investment market. Many issues were made out of whole cloth, and
investment bankers often forced corporations to issue new securities.
Abundant capital and "easy money" tempted corporations to improve
and enlarge plant equipment, which temporarily stimulated prosperity
but resulted in an increasing displacement of labor and overproduc-
tion. The flood of new securities was swollen by the issues of invest-
ment trusts (guilefully offering security and large profits!), trading
companies, and holding companies, an important source of the phe-
nomenal financial profits. Foreign issues increased; American bankers
accepted any business yielding good commissions and their loans
contributed to sustaining the Fascist dictatorship in Italy and the
military dictatorships in Cuba and Venezuela. The superabundance of
investment capital made easy the absorption of an unusually large
mass of new issues:

The total of new securities (excluding refunding) rose from $4,304
million in 1923 to $10,182 million in 1929, an increase of 137%.

New corporate issues rose from $2,031 million in 1923 to $8,002 mil-
lion in 1929, a four-fold increase; total corporate issues in the seven
years amounted to $30,523 million.

New foreign issues rose from $892,000,000 in 1923 to $1,572 million
in 1927 and slumped to $762,000,000 in 1929, the total for the seven
years being $7,805 million; where domestic issues (excluding invest-
ment trusts and trading and holding companies) increased an average
of 7.7% yearly, foreign issues increased 10.1% — an indication of the
rapidly increasing importance of the export of capital.

The aggregate of all new issues in 1923-29 amounted to $48,548
million.^*

In addition to raising capital by issuing securities, corporations cus-
tomarily reinvest up to one third or more of their profits; surplus rose
from $33,596 million in 1923 to $50,725 million in 1929. In the year
of the great crash, in 1929, capital expenditures of all sorts (in-
cluding pubUc works) probably totalled $15,000 million. Total corpo-
rate capital rose from $191,000 million in 1923 to $233,000 million in
1929.^^

Thus increasingly higher profits and their conversion into capital
by means of an increasing output and absorption of capital goods
resulted in an upsurge of prosperity. The active accumulation of
capital expressed an unusual combination of the long-time factors of
expansion: it appeared only once before in American history, in the
period immediately after the Civil War. Then the major factor sus-
taining the upward movement of prosperity was the development of

Profits and Prosperity 75

old and new industries, particularly building construction, iron and
steel, railroads, and agricultural equipment. In 1923-29, prosperity was
sustained by expansion in building construction, electric power, and
new industries. In both cases expansion created increasing demands
for capital goods, which stimulates the making of profits and their
conversion into capital. The most important difference was replace-
ment of the frontier by greater industriaUzation of the South and by
the export of capital. The latter was the more fundamental difference:
it offset exhaustion of the inner long-time factors of expansion by
imperiaUst exploitation of similar international factors.

But the maintenance of prosperity requires a proportional distribu-
tion of investment and consuming income, a sustained balance between
the output of capital goods and consumption goods, between produc-
tion and consumption. There was no such distribution or balance;
and the basic reason for its absence was the antagonism between prof-
its and wages, resulting in the lag of wages behind profits. This
antagonism is fundamental in capitalist production.

CHAPTER V

The Policy of High Wages

JIn spite of the available facts, there was, in 1923-29, an almost
universal belief that American employers had accepted the "policy of
high wages" as the basis of prosperity. An economist wrote: "Increas-
ing productivity of labor and industry, advancing wages, higher Uving
standards, and greater consuming or purchasing power, is now the
avowed policy and practical program of American industry." . . . An
economic historian: "The cultivation of consuming power became the
direct concern of manufacturers, with results that profoundly affected
wages and price adjustments [recognizing] that to raise wages and
reduce prices was the way to promote and safeguard prosperity." . . .
The President's Committee on Recent Economic Changes: "Leaders
of industrial thought began consciously to propound the princi-
ple of high wages." . . . The dogma of the "policy of high wages"
was generally accepted in Europe, although a German trade union
delegation was skeptical and British employers frequently stated that
American employers did not pay any higher wages than they had to.
Two British investigators reported that not only did American em-
ployers constantly raise wages but that they never limited earnings on
piece rates or cut rates! ... A German economist, ajter prosperity
crashed into depression: "The industrialists had to revise their eco-
nomic theories. Henceforward, in common with the principal groups
of organized workers, they regarded high wages not as a costs item
involving higher prices, but as an element creating increased purchas-
ing power, and with it the potentiality of increased sales." ^

There were two basic assumptions in the dogma of the policy of
high wages:

In 1921-22, enlightened employers, recognizing that high wages
promote and safeguard prosperity, voluntarily raised wages, where-
upon prosperity burst forth in all its radiant glory.

In 1923-29, the employers practiced the policy of high wages; they
voluntarily and constantly raised wages, which rose higher and higher,
to increase consumption, production, and prosperity.

But wages are not determined in this fashion, neither in an "unfet-

76

The Policy of High Wages 77

tered" capitalism nor in a capitalism upon which are imposed the
"controls" of state capitalism. The facts are clear:

Real wages rose in 1921-22, but the increase was imposed upon the
employers by falling prices and labor s militant resistance to cuts
in money wages.

The rise stopped as a real upward movement after 1923; money
wages and real wages were practically stationary in igi^—ig, precisely
when American capitalism was being touted as having accepted in-
creasingly higher wages as its "avowed policy and practical program,"

The immediate post-war period was one of sharp struggle between
labor and capital. Press and employers demanded a "liquidation** of
labor and of "high wages." According to one of the apologists of pros-
perity: "The burden of all business discussions, as well as political
debates bearing upon financial and industrial problems, was the con-
stantly reiterated declaration that there 'must be a return to normalcy*
. . . meaning a reversion to pre-war wages, industrial conditions and
prices." ^ In spite of the employers' resistance, and by means of embat-
tled struggle, labor forced up money wages, which in 1920 reached
an exceptionally high level, an all-time high. In 1921—22, the
employers' resistance developed into a general offensive to cut wages.
An ally of the House of Morgan, the National City Bank of New
York, declared high wages were responsible for the depression and
retarded revival. The National Association of Manufacturers and other
employers' organizations proposed to "deflate" the trade unions,
whose "pretensions" were considered "menacing," by means of the
"American plan" of "open shop." The unions, cajoled during the war,
were now stigmatized as a menace to American democracy and civili-
zation. Samuel Gompers, president of the American Federation of
Labor, was met with derision and denunciation when he urged : "High
wages, the best possible wages, are the greatest incentive to pros-
perity." A storm of wage cuts beat upon the workers: hourly money
earnings in manufactures were cut 15% in 1921 and another 5% in
1922; there were similar cuts in non-manufacturing industries, while
the strongly unionized building trades workers had their hourly rates
cut nearly 6%.^

Labor resisted the capitalist offensive. There were 2,226 strikes in
1920 involving 1,463,054 workers and 2,684 strikes in 1921-22 involv-
ing 2,711,809 workers."^ Great strikes broke out in the mines and on
the railroads. Rebellious memberships in the unions forced strike ac-
tion upon the reluctant union bureaucracy; "outlaw" strikes disre-
garded the bureaucracy and agreements with the employers. Capitalism

78 The Decline of American Capitalism

resorted to its usual methods of legal and physical force to crush the
strikes. During the war, although strikes led by the Industrial Work-
ers of the World were brutally suppressed, the government maintained
a velvet-glove policy toward "patriotic" labor, under pressure of polit-
ical necessity. But the iron fist was revealed immediately after the
war. In 1919, President Woodrow Wilson denounced the coal miners'
strike as a "fundamental attack, which is wrong both morally and
legally, upon the rights of society and the welfare of the country."®
The violence and other repressive measures against the miners and
steel workers in 1919 were used again in 1921-22 to crush strikes. The
courts issued injunctions upholding the employers against the work-
ers; injunctions to limit picketing were declared constitutional by the
United States Supreme Court, while it declared unconstitutional any
law prohibiting the issuance of injunctions in labor disputes.^ Injunc-
tions helped to break the miners' strike in 1921 and the railroad shop
crafts' strike in 1922. The strikes were animated by economic discon-
tent, not political, but revolutionary thunder was in the air. In the
four years 1919-22 there were 7,575 strikes involving 8,335,211 workers
— an extraordinary expression of labor militancy. The Seattle six-day
general strike in 1919 had many revolutionary implications — the strike
council practically governed the city and labor guards maintained
order in the streets. The most repressive measures were used against
the left wing of the labor movement, the Communist Party and the
Industrial Workers of the World; in many states mere membership
in these organizations was made a crime punishable with severe im-
prisonment. Measures to prohibit strikes were discussed in Congress
and state legislatures. An intangible but real factor was the proletarian
revolution in Russia; the revolutionary overtones inspired militant
workers to more aggressive action and affected the employers: revolu-
tions do start with strikes.

As a result of labor's resistance, of its immediate and potential
power, money wages were not cut as much as the employers desired
or as much as they might have been. In 1923, hourly money earnings
even increased, although still 11% below 1920. Money wages were cut,
but prices declined still more and real wages rose (the rise was more
than offset by an increase in the efficiency and intensity of labor, result-
ing in a higher yield of surplus value). Practically the whole of the
rise in real wages in ig2i—2g too\ place in ig2i—2^.

The capitalist attitude toward higher wages was clearly revealed in
the speeches and writings of Samuel M. Vauclain, president of the
Baldwin Locomotive Works (an affiliate of the House of Morgan),

The Policy of High Wages 79

and one of the most conspicuous mouthpieces of the poUcy of high
wages:

In 1919, Vauclain had not a word to say about high wages; pros-
perity, he said, depends upon foreign trade.

In 1921, Vauclain urged unrelenting struggle against "high wages"
and trade unions; industry is menaced "by extravagant demands of
labor both as to rates and shortening hours." One of the "requirements
for prosperity" was "the adjustment of labor." He thundered: "A gen-
eral strike is threatened. Let the strike come. Pray for it. Pray for
deliverance from outrageous regulations and wage schedules."

In 1922, Vauclain again urged wage cuts, and condemned the strikes
for higher wages of the miners and railroad workers. "They are talk-
ing," he said, "about wages instead of work. Wages do not have to
be lowered everywhere, but in many places they must be lowered to
get going."

In 1923, after higher real wages had been forced upon the employ-
ers, Vauclain said: "There is nothing in low wages; higher wages are
an essential part of prosperity." And one year later he proclaimed
unctuously : "Higher wages have been a great blessing." ^

Real wages rose against the employers' resistance; and in 1923—28,
when high wages were proclaimed "the avowed policy and practical
program" of American capitalism, real wages were practically sta-
tionary (Table III). In 1920—22 real wages scored an increase of 12%,
because of lower prices, as hourly, weekly, and yearly earnings all
declined. After 1923, the upward movement practically ceased: money
earnings remained below 1920 and real earnings rose only slightly
because there was no considerable fall in prices. Hourly money earn-
ings were 3.6^ higher in 1927-28 than in 1923, but full-time weekly
earnings were constant, due to a moderate shortening of the hours of
labor and to a probable decrease in wage rates, as changing processes
or products made it possible to make concealed reductions. by tight-
ening the rates on new jobs, workers maintaining their customary
earnings by working harder. Average yearly money earnings of all
workers rose only $55 or 5%; the index of real wages was stationary
in 1924-25 and then rose slightly. In manufactures, average yearly
earnings in 1928 were lower than in 1923. Wages fell considerably in
many groups, particularly in the industries depressed by the com-
petition of newer products. Real hourly and weekly earnings in 1928
were 1% lower than in 1923 in cotton manufacturing, and 3% lower
in men's clothing; weekly money earnings in cotton manufacturing
decreased from $21.24 in 1923 to $19.71 in 1928, in heavy equipment

HOURLY

FULL-TIME

EARNINGS

WEEKLY EARNINGS

*

$28.78

*

.607

32.57

*

.525

27.62

*

.495

27.64

*

.541

27.58

27.67

.562

27.51

27.48

.561

27.45

27.75

.568

. 27.03

27.66

.576

27.09

27.74

.579

*

*

INDEX

YEARLY

OF REAL

EARNINGS

WAGES

$1029

100

1273

102

983

104

1021

108

II50

115

"34

"5

1 176

115

1217

119

1205

*

#

«

80 The Decline of American Capitalism

TABLE III

The Movement of Earnings and Real Wages, igig-28

YEAR
I919
1920
I92I
1922
1923
1924
1925
C926
1927
1928

* Not available.

Source: Hourly earnings, 24 manufacturing industries — National Industrial Con-
ference Board, Wages in the United States, p. 47; weekly earnings, first column 12
industries, second column 42 industries, covering 2,856,160 and 5,832,302 workers
respectively out of over 8,000,000 employed in manufactures — National Bureau of
Economic Research, Recent Economic Changes, v. II, p. 433; yearly earnings, all work-
ers— W. I. King, The National Income and Its Purchasing Power, p. 146; index of real
wages — ^Paul H. Douglas, Real Wages in the United States, p. 392.

from $33.02 to $31.32, in wool manufacturing from $23.97 ^o $21 -yS-
Wages were slashed among the coal miners and textile workers. The
real earnings of railroad workers other than trainmen fell 1%. Al-
though there were fewer strikes in this period, many workers struck
against wage cuts or for higher wages, particularly in mining and
textiles. The conclusion is inescapable: real wages rose in 1920-23,
but thereafter were practically stationary. (In 1929 there was a no-
ticeable rise in real wages and total wages, but it was wiped out by
the depression; in fact the rise was bound up, antagonistically, with
the spurt in production which marked the final aggravation o£ the
forces of cyclical breakdown.) There was no policy of increasingly
higher wages, an impossibility under the exploiting relations of
capitalist production.* From another angle this appears in the fact
that for 1924-28, industrial wages (manufactures, mining, oil wells,

* Still less was there any policy of high wages in the industries of the Southern
states. The use of the newest, most efficient machinery, cheap raw materials and power,
and a labor force the wages qf which were regulated by the standards of living of
a region comparatively undeveloped industrially, gave the southern employers an
opportunity to realize extra profits.

'-~~

1

r" 6v% ^

' PROFITS AND 1

i

OVERHEAD COSTS \

130

1

^

1

^36'^^P

IZS

1

m<^T0iRiiTiOM oe

^ VALUE'AobE6i'l9i9 M

i

i

X

V

li

y

\xo

V

1

..♦•'

X
X
X

ITEARLY EARNINGS
■ 1

h

1

1 1

/

•

V

115

C

1 1

b

/

•
•
•
•
•

s

r

Hrealwa&es

1

»

/

JT

1

•

V

1

•

/

V

1

•

1

V

1

•

1

Jr

1

• 1

i

y

no

I

1

• IN^

/ r

if

• f

• f

\

JURPLU5
VALUP

-1

I

t 1

1 ki 1^

_

r

1

•

^•*

■

/

•
•

J

.L^^

1

1

•

j^

1

1

«

Ar

1

I

•

X

105

1

•

V

1

1

>

ilW

J

,•

Jir

jV

1

•

Jk'

#

'V

}f

/

\

1

r

#

\

•

:

'

#

1

•

j^

#

^

•

>

/

V,

too

.•

i

.^

/

>

*-^,

^vl

/

^ V

i

V

i

r-llNOUSTR\AL WA&E

^h

^>r

>/

\

/

i 1 1

/"

^^v,

r\

/

<?5

f

\r

w

n \Hio H2I \ux mz \^m ms mh mi his h

w

u

III. THE SHARE OF LABOR IN PROSPERITY— 1919-29.

82 The Decline of American Capitalism

quarries, construction and transportation) fluctuated around the 1923
level.

But there was a policy of increasingly higher profits. While wages
were practically stationary, labor costs in 1929 were 9.5% lower than
in 1923 and overhead costs and profits 10.6% higher, the one scoring
an average yearly decrease of 1.3%, the other an increase of 1.7%.^
Again the facts refute the theory that productivity rises before wages
and wages necessarily rise as productivity rises. Real wages in manu-
factures began to rise in 1921 before any considerable increase in
the productivity of labor, which forced employers to improve efficiency
to safeguard profits. In 1921-23, labor shared in the gains of rising
productivity. (A part of the increase in real wages came neither from
higher productivity nor the lower prices of manufactured goods, but
from the sharp drop in the prices of foodstuffs, which was ruinous
for the farmers.* Raw materials, moreover, were cheapened: their
costs were $2,500 million less in 1923 than in 1919, while money wages
rose only $500 million and "value added by manufacturing" rose $1,000
million; nearly one-half of the raw materials consumed in manufac-
tures are agricultural products.^ But rising productivity in 1924-29
was not accompanied by any corresponding rise in real wages; produc-
tivity rose 22% ^° but real wages were practically stationary. In the ten
years 1919-29 the productivity of labor in manufactures rose 43%,
and there were similar increases in mining, transportation, and the
power industry; real wages rose not more than 20% (partly offset by
increasing unemployment). In final analysis, higher wages depend
upon higher productivity, but productivity always increases more
than wages, in all stages of capitalism, whether "unfettered" or under
"control."

While real wages were practically stationary in 1924-29, relative
wages fell sharply as profits rose, plainly revealing the antagonism
between profits and wages. Relative wages, the share of the workers in
the product of industry, fall continuously. The fall is usually greatest
when the productivity of labor rises most rapidly, even if real wages
increase, as profits rise more and the worker is cheapened by more
productive labor. This appears clearly in the diminishing proportion

*In England during the "Hungry Forties," when the productivity of labor and
profits were steadily rising, the workers were starving. The situation was "relieved"
by repeal of the Corn Laws, lowering food prices; real wages rose at the expense
of agriculture, not of capitalist profits. Capitalist production completely ruined British
agriculture. There is no danger of such complete ruin in the United States, but the
tendency is in that direction.

The Policy of High Wages 83

wages constitute of "value added by manufacturing." The propor-
tion fell from 51.1% in 1849 to 40.2% in 1909, rose to 42.7% in 1923,
and fell to 36% in 1929, when the proportion of wages to "value added
by manufacturing" was 30% lower than in 1849/^ There was, nat-
urally, a great increase in labor's yield of surplus value (Table IV).

TABLE IV

Growth of Surplus Value, Manufactures, igi^-^i

VARIABLE

CONSTANT CAPITAL

CAPITAL

RAW

VALUE

SURPLUS

RATE OF

INDEX

YEAR

WAGES

MATERIALS DEPRECIATION OUTPUT

VALUE

SURPLUS

OF

(millions)

(millions)

(millions)

(millions)

(millions)

VALUE

RATE

I914

$4,068

$6,500

$500*

$16,200

$5,132

I26.I

lOO.O

I919

10,462

14,500

1,016

39,250

13,272

126.8

100.5

1923

11,009

13,200

1,424

39,050

13,417

121.9

96.7

1925

10,730

13,600

1,506

40,400

14,564

135.7

107.6

1927

10,849

13,450

1,819

41,000

14,882

137.2

108.8

1929

11,621

15,450

2,018

47,100

18,011

155.0

122.9

I93I

7,225

8,400

2,100

27,950

10,225

I4I.5

II2.2

* Estimated.

Surplus value, or unpaid labor, equals the value of output less the value of wages,
raw materials, and depreciation on fixed capital; the rate of surplus value is the ratio
of surplus value to wages. The surplus value realized in the form of commercial profit
is not included.

Source: Wages, materials and output — Department of Commerce, Statistical Abstract,
1931, pp. 483, 813, and preliminary report of the 1931 Census of Manufactures; depre-
ciation (including depletion) — Bureau of Internal Revenue, Statistics of Income for
the respective years.

The rate of surplus value, of unpaid labor, was 22.9% higher in 1929
than in 1914 and 27.1% higher than in 1923. It fell temporarily in
1923 because of the fall in prices and the rise in real wages of the two
preceding years, with which the employers had not yet caught up.
But they did catch up in 1925, when the rate of surplus value moved
sharply upward. The rate fell again temporarily, and slighdy, in 1931,
but the rate moved up sharply in 1932-34 because of another great
increase in the productivity of labor. Thus, in 1929, relative wages fell
to the lowest point in American history in the midst of an extraor-
dinary rise in the productivity of labor, surplus value, and profits.*

* Falling relative wages are characteristic of capitalist production. The share of the
German workers in the social product (1927 as 100) was 117 in 1913 and 94 in 1929.
J. Kuczynski, "Der Anteil des Deutschen Industriearbeiters am Sozialprodukt," Kolner
Sozialpolitische Vierteljahresschrift, January, 1931, pp. 85-95.

84 The Decline of American Capitalism

While real wages in general were practically stationary after 1923,
the wages of union workers (except miners) kept on rising, 25% to
50% and more. In the building trades, hourly wage rates rose 33%
in 1923-29; in eight union trades, rates rose 30% and weekly earnings
22%. No such upward movement occurred in the rates and earnings
of the workers as a whole. In 1922-29 the average yearly rise in a
composite index of real earnings (factory workers, unskilled labor,
clerks) was 1.9%; in the union index it was 37%.^^ The rise of union
wages, in most cases, bore little relation to the rise of productivity in
the particular occupations; it was determined primarily by the power
and strategic position of union labor in the sheltered trades. Wages
were often stationary or fell among masses of unorganized workers
where productivity gains were exceptionally large. There was only a
small upward movement in the salaries of clerical workers, whose work
was being intensively mechanized during this period. The unusually
large rise in union wages was used to "prove" that all wages were rising
rapidly. It was responsible for the conservatism of union workers and
particularly of the union bureaucracy, which accepted the mythology
of prosperity and believed that wages would rise everlastingly in this
best of all possible worlds. But unskilled, unorganized workers, who
make up from 25% to over 50% of the labor force, made hardly any
gains; their real earnings in 1923-29 were not much higher than in
1919. An index of the real earnings of unskilled workers in manufac-
tures, building trades, agriculture, and on the railroads (1914 as 100)
rose to 116 in 1919, fell to 108 in 1920 and 97 in 1921, and rose to 102
in 1922, 113 in 1923 and 116 in 1926. Unskilled earnings rose slightly
in the next three years. During the World War unskilled labor scored
considerable gains, because of the scarcity of workers, narrowing the
differential between the wages of skilled and unskilled; then the dif-
ferential widened again.* One investigator concluded: "Apparently
the increase in productivity that has taken place has not contributed
its share toward the increase of the wages of unskilled labor." ^^

How high, moreover, were "high wages" in the "Golden Age" of
American capitalism, before the great depression ? While among union
workers, the aristocracy of labor, earnings ranged as high as $40 to
$75 and more weekly, among other workers they were as low as $10
weekly. Average weekly earnings among unskilled workers were
below $20. Nearly 2,000,000 workers in manufactures earned less

* The differential in the wages of skilled and unskilled workers also narrowed in
Europe during the war, but by 1930 it had again widened considerably. A. G. B.
Fisher, "Education and Relative Wages," International Labour Review, June, 1932, p. 745.

The Policy of High Wages 85

than $1,000 yearly. Railroad workers were among the best paid, yet
section hands earned an average of $17 weekly; 500,000 workers, one-
third of all railroad workers, earned less than $25 weekly. Average
weekly earnings were below $20 in lumber mills, cotton, tobacco,
candy, and canned goods. Women workers usually earned from $9
to $14 weekly. The average weekly salary of all employees in one chain
store organization in 1929 was $22.71. In chain stores of the 5^ and 10^
variety, in spite of the phenomenal rise in sales and profits, average
weekly earnings were $12, with 25% of the girls earning less than
$10 — earnings "not sufficient to procure the necessities of life."^*
Among the workers as a class (excluding farm laborers), earnings
were probably distributed as follows: 2,000,000 workers earning over
$2,000 yearly; 14,000,000 workers earning from $1,250 to $2,000; 12,-
000,000 workers earning below $1,250. (Unemployed workers in 1923-
29 averaged nearly 2,000,000 yearly.) The average yearly family income
was not much larger than the individual average of $1,250. An investi-
gation in Chicago in 1924-26 established that the family income of
semi-skilled and unskilled workers ranged from $800 to $2,400 yearly;
the average was $1,500, with the father, mother and one or more chil-
dren working in 42.8% of the families.^^ The average yearly family
income among workers as a class was probably $1,700; family budgets
based on "minimum requirements of health and decency" (excluding
savings) were estimated as follows: New York City $1,875, Philadel-
phia $1,926, Detroit $2,032.^^ Accordingly:

High wages were low wages in terms of adequacy to provide
minimum requirements of living; grinding poverty prevailed, more-
over, among millions of workers.

High wages were low wages in terms of the increase in the pro-
ductivity of labor and in production, which greatly outstripped the
increase in wages: productivity rose from 15% to over 200%, the aver-
age 43%.

High wages were low wages in terms of the possibility of still
higher wages; all through 1923-29 (and this is characteristic of capi-
talism in all stages, "unfettered" or under "control"), wages could
have been considerably higher if labor had shared in the gains of ris-
ing productivity and if the unused capacity of industry (25% to 75%
in many cases, in the peak years 1928-29!) had been utilized to produce
goods instead of standing idle because of the exploiting relations and
contradictions of capitalist production.

To indicate the enormous progress implied in the policy of high
wages, one of the myth-makers of prosperity ^^ conjured up four stages

86 The Decline of American Capitalism

in the determination of wages. The stages are fantastic, revealing an
astonishing flight from reality; the reality shows the actual mechanism
of wage determination under capitalism:

1. Prior to 1900: Barbarism; wages were decided by force; employers
considered labor a commodity, the workers had no theory of wages to
offer in arbitration proceedings. But real wages scored their greatest
increase in American history.

2. From 1900 to 1916: Progress; organized labor insisted that wages
should be adjusted to cost of living; reformers developed theories of
"living" wages and "minimum subsistence" wages; the Clayton Act,
which "declared" that labor is not a commodity, was hailed as a great
achievement. But real u/ages were practically stationary.

3. From 1917 to 1922: Reversion to barbarism; employers and work-
ers again resorted to force, "threw off all restraints" and a "deplorable
condition" of "industrial conflict" decided wages. But real wages rose
over i^%.

4. From 1923 to 1929: Magnificent progress; employers "recognized"
that "advancing wages" are the basis of prosperity; "old wages, theo-
ries and standards were scrapped along with obsolete machinery and
methods." But real wages were practically stationary.

Two more stages may be added to complete the story:

1. From 1929 to 1933: Final exposure of the policy of high wages;
employers cut wages drastically while the productivity of labor rose
sharply; wages decreased more than in previous depressions.

2. From 1933 on: More progress, and the ballyhoo of Niraism; state
intervention to "raise" wages and "spread" prosperity; lower real
wages, total wages decrease while the productivity of labor and unem-
ployment increase, profits rise, another major depression looms.

The depression destroyed the myth of the policy of high wages.
Lip-service was paid to it at a conference of 400 "key" businessmen,
called by President Hoover in December, 1929, which formed a per-
manent organization to "stabilize business" and to prevent the depres-
sion from developing any further. A solemn pledge was given that
employers would not cut wages. The high officials of the American
Federation of Labor solemnly accepted the pledge, and agreed to
maintain industrial peace. One year later. Secretary of Commerce
Lamont said: "It is a noteworthy fact that practically no cuts in wages
have been made by the employers. This stands in marked contrast
with the practice in previous similar recessions. It marks the wide-
spread conviction that permanent progress in prosperity is dependent
on liberal wages and consequent large buying on the part of the

The Policy of High Wages 87

masses of the people, and that recovery from any temporary setback
will be promoted by the same policy." But the pledge not to cut wages
was almost immediately violated. By April, 1930, William Green,
President of the American Federation of Labor, was forced to "act"
against the cutting of wages. "I propose," he said, heroically, "to join
the movement in the next Congress to reduce the tariff protection"
of employers who cut wages. And six months after his statement
about "no cuts in wages" and "prosperity is dependent on liberal
wages," Secretary Lamont said: "As the period of depression length-
ens, many corporations are faced with the prospect of closing down
altogether and thus creating more unemployment, or, alternatively,
seeking temporary wage reductions." ^®

All through 1930, wages were cut drastically by employers, includ-
ing those who had given the "pledge" not to do so. They were cut
10% to 15% in manufactures. The cuts in the bituminous coal, textile,
and boot and shoe industries were so bad that William Green classed
the employers as "public enemies." ... By 1931, the policy of high
wages was forgotten even in words, and leading representatives of cap-
ital were repeating the sentiments of 1920-22: Liquidate labor and
high wages! The Journal of Commerce insisted that wage cuts "are
among the various aids to business recovery." A convention of the
American Investment Bankers Association demanded a cut in the
wages of railroad workers, which were cut severely, to protect investors
(including, of course, widows and orphans). The National City
Bank: "Wage cuts are one of the encouraging features of the situa-
tion." Albert H. Wiggin, chairman of the Chase National Bank, who
all these years speculated in the stock of his own bank: "It is not
true that high wages make prosperity. When wages are kept higher
than the market situation justifies, employment and the buying
power of labor fall off. Many industries may reasonably ask labor to
accept a moderate reduction of wages." ... All through 1931, wage
cuts beat upon the workers with increasing severity. From a high of
133 cuts in any one month of 1930 they rose to 335 in March, 1931;
cuts averaged 10% in manufactures and 25% in bituminous mining.
In 1931, according to Census figures, total wages in manufactures were
37.8% lower than in 1929 and average yearly earnings 15.6% lower.
. . . One of the meaner aspects was sweating women and children
in homework. In Pennsylvania, violations of the child labor law rose
from 10% in 1930 to 18.8% in 1931, and violations of the woman's
law from 3.8% to 17.8%. Earnings were as low as 12^ an hour. In
New York City clothing factories, women workers were paid from

88 The Decline of American Capitalism

$1.75 to I2.75 for a week's work. . . . The fall in prices was not
enough to oflFset wage cuts, and real wages fell. Real earnings in manu-
factures in 1931 were 8% below 1929. In twenty-five manufacturing
industries average weekly earnings decreased from $28.54 i^ ^9^9 ^^
$17.10 in 1932, or 40%, and hourly earnings from 58.9^ to 49.7^, or
16%. In 1931, the hourly rate for unskilled workers in manufactures
was 8% below 1901. The wages of hired farm labor were at the lowest
level since 1916. . . . Clerical workers suffered more than in previous
depressions; their work is now so thoroughly mechanized that they
are practically wage-workers. The salaries of women clerical workers
in New York City fell 25% to 40%. This is one of many similar adver-
tisements which appeared in the newspapers of New York City early
in 1933: "Wanted, Stenographer-Bookkeeper: This position in small
office requires capability, experience, and industry, easily worth $30 a
week and more. Now offering $12-15 ^ week. No beginners." The
average earnings of clerical women workers were $11.39 weekly; em-
ployers deliberately depended upon "charity taking the place of an
adequate wage." One lawyer offered $8 weekly for an expert typist
with a knowledge of German; another cut the salary of his secretary,
a college graduate, to $6. . . . Workers in professional occupations had
their wages cut and work hours increased. Dentists offered assist-
ants weekly salaries of $10 and less. College graduates, after preparing
for professional service, of which there is a tremendous need, were
offered this (advertisement in the New York Times and World-Tele-
gram) : "Graduates of Harvard, Yale, or Princeton to learn restaurant
business starting as bus boys in famous Times Square restaurant;
weekly salary begins at $15; splendid opportunity."^^ Never was a
myth as thoroughly exploded as the myth of the policy of high wages.
As a result of unemployment, wage cuts, and part-time work, wages
fell to levels unprecedented in any other depression. Wages disbursed
by corporations, probably 75% of the total, fell 21% in the worst year
of the 1920—22 depression; in the worst year of this depression they
fell 65% (Table V). The aggregate of wages, in the two years 1931-
32, were not much higher than in the single year 1921, when the
depression was at its worst. Total wages in 1932 were not only 65%
below 1929 and half as much as in 1921-22, but were lower than in
any year since 1910. In neither depression, however, did dividends and
interest follow the fall in wages. They even rose slightly in 1921-22,
while wages moved downward. In 1930, dividends and interest fell
1.8%, but were 7.7% higher than in 1928. As the depression became
worse wages tumbled disastrously. Even dividends and interest, con-

The Policy of High Wages

89

TABLE V

Dividends, Interest, Salaries, and

Wages in

Depression

DIVIDENDS-INTERESTf

officers' i

salaries

CORPORATE WAGES

YEAR

AMOUNT INDEX

AMOUNT

INDEX

AMOUNT INDEX

(millions)

(millions)

(millions)

1920

$5,570 lOO.O

$2,437

lOO.O

$22,155 lOO.O

I92I

5,617 100.8

2,258

92.7

17,525 79.1

1922

5,702 102,4

2,409

98.8

18,410 83.1

1929

10,686 loo.o

3.336

1 00.0

24,675 lOO.O

1930

10,492 98.2

3,138

94.1

18,506 75.0

I93I

8,674 8l.2

2,698

80.9

13,151 53-3

1932

7,1361 66.7

*

*

8,636 35.0

* Not available.

t Dividends for 1920-22 include only the amounts received by income-taxpayers;
other years include all dividends disbursed less intercorporate dividends.

X Estimated.

Source and methods of computation: Dividends, interest, and officers' salaries — Statis-
tics of Income. Wages for 1920-22 are the estimates of W. I. King, The National Income
and Its Purchasing Power, p. 132, of which 75% is assumed to be disbursed by corpora-
tions. For later years wages have been estimated as follows: According to the United
States Bureau of Labor Statistics, wages in manufactures in 1929 were the same as in
1926; applying this ratio to King's estimate of total wages in 1926 and allowing for
the fact that the Census reports of wages in manufactures constituted 35.3% of total wages
in 1923, 1925, and 1927, yields the figure of total wages for 1929. The Census for
1 93 1 reports wages in manufactures of $7,225 million, 62.2% below 1929; but as
unemployment was greater in other industries, it is assumed that manufacturing wages
constituted 50%, instead of 44%, of total wages. The Bureau of Labor Statistics esti-
mates that wages in manufactures were 80% of 1929 in 1930 and 38% in 1932; applica-
tion of these ratios to total wages for 1929 and an allowance for greater unemployment
and wage cuts in non-manufacturing industries yields the figures for total wages for
1929 and an allowance for greater unemployment in non-manufacturing industries
yields the figures for total wages in 1930 and 1932.

trary to the former experience, were affected by the unusual severity
of the depression.* They were, however, fairly generously maintained.
In the three years ig^o-^2, aggregate interest and dividend payments
were ^4-9% higher than in 1^21—22, while wages were 2^.2% lower.
This is progress, undoubtedly, in the protection of the income of the
owning class, but not in preventing depression, mass unemployment,
and mass starvation. And the policy of high wages.? In ig^o-^2 wages
averaged only ^4.6% of the ig2g level, dividends and interest 82.4%^

* Except interest on federal, state, and municipal bonds; this rose steadily until it
exceeded $1,560 million in 1932. New York Times, January 29, 1934.

90 The Decline of American Capitalism

Generosity in the payment of dividends and interest undermines pros-
perity and prolongs depression.

Beating down wages was the primary method of maintaining divi-
dend and interest payments. Sometimes this assumed peculiarly revolt-
ing forms. The railroad managements, for example, secured a wage
"deduction" on the plea that the saving would be used to stabilize
employment, but it was actually used to pay dividends. A minor
method consisted of downright swindle. In 1931-32 four of the largest
New York guarantee mortgage and title companies paid dividends of
$13,150,000, at rates ranging from 4.5% to 25%, after invoking the
clause which permitted them to defer (that is, default) payments of
interest and principal on mortgages. Holding companies plundered
subsidiaries to maintain their own dividends. But interest and divi-
dend payments were maintained also by dipping into surplus, for net
income decreased severely and deficits mounted. Corporations retain
a considerable part of their earnings; one part is reinvested, another
part is put into cash reserves, salable property outside the business,
and government securities. This practice represents an accumulation
of "rainy-day funds," according to one authority, "as an insurance
that dividends will be maintained." Out of these "insurance" reserves
corporations pay dividends when earnings fall or deficits arise, both
in prosperity and depression. In 1930, surplus amounted to $54,898
million; of this $10,000 million was invested in tax-exempt govern-
ment securities, yielding an income of $536 million. Corporate surplus
was "dipped into" to the extent of $10,760 million in 1930-31.^^ The
corporation executives who practice dividend insurance sternly reject
compulsory unemployment insurance as a menace to "our sturdy
American individualism." So do those rugged individualists, the stock-
holders, who do not consider it demoralizing to accept the "dole" of
dividend payments which are not earned.

The officers of corporations not only take care of the stockholders
(and of themselves as stockholders), but also take care of themselves
as officers. In the depression of 1921-22, officers' salaries were fairly
well maintained, while net earnings fell and wages were slashed. In
1930-32, the fall in wages compared with salaries was even greater
than in the previous depression. Salaries were higher than in 1921-22,
wages lower. What fall there was did not affect the "big" captains of
industry and finance. Many even managed to increase their com-
pensation considerably. From 1929 to 1933, while the bank of which
he was chairman was losing millions, Albert H. Wiggin "earned"
$1,500,000 in salary and bonuses. He made more millions speculating

100

60

40

DIVIDENDS- INTEREST

OFFICERS'

WAGES'

xo

_ H 19^0-^2 h

too

iszi

8o

60

40

50

iqzi

^-

/DIVIDENOS-
/ INTERtST

OFFICERS'^^^^Vi*,^
SALARIES ^*

■

WAGES ^

1- 1929^32

1-1

1

['\2°i

W30

1931

IS3X

Wages: down 25%
Dividends-interest: up 55%

WAGES

dividends-
interest

IV. CAPITAL AND LABOR IN DEPRESSION.

92 The Decline of American Capitalism

in the bank's stock. Upon retiring as chairman, Wiggin was voted a
life salary of $100,000. The assets of the four largest life insurance
companies shrank "alarmingly," yet officers' salaries rose from $970,000
in 1929 to $1,180,000 in 1932. These are all mutual companies, run
solely, according to their masters, in the interest of policyholders, par-
ticularly the widows and orphans. While wages were cut severely on
the railroads, presidential salaries of $80,000 to $120,000 yearly were
increased or maintained. The officers of public utility corporations,
which did not cut rates although wages and prices fell, were very
keen on taking care of themselves. Officers' salaries in five electric
companies in New York City were from 17% to 77% higher in 1932
than in 1927. One company, in 1933, simultaneously raised its officers'
salaries and cut the payroll 8%. Another raised administrative salaries
from $149,700 to $230,000 and cut the payroll $1,500,000. The salary of
the president of an aircraft company was raised from $100,000 in 1929
to $192,500 in 1932. One tobacco company in 1932 paid its president
$2,627,000 in salary and bonuses.^^ The large corporations of to-day,
where ownership is separated from management and control, resem-
ble a feudal barony. They are run primarily in the interest of the of-
ficers and their financial capitalist masters. Then come the stockhold-
ers, who are plundered in many ways. Labor is a poor third.

Clearly there is a fundamental antagonism between profits and
wages. It is irreconcilable. Wages are not determined under the "ideal'*
conditions assumed by bourgeois economists, whose wage theories
accept the permanence of capitaHsm and justify the exploitation of
labor. Within the Hmits of the value of labor power (itself an historical
category), competitive conditions in the labor market, and the expan-
sion of capitalist production, wages are determined by class power
and class action. The movement of wages is, however, limited by
conditions which perpetuate and increase capitalist exploitation. Even
when wages rise, they fall relative to profits, which rise still more.
Profits and wages move inversely: the one rises as the other falls.
Profits may rise because wages fall or wages may fall because profits
rise; but the tendency is for wages always to fall relatively to profits.
This augments the mass of capital and its power to exploit the work-
ers. But it simultaneously sets in motion the forces which create eco-
nomic disproportions and cyclical breakdown, and cumulatively devel-
ops the elements of the decline of capitalism. The antagonism between
profits and wages becomes stronger in the epoch of capitalist decline,
when production tends to move downward because of the exhaustion
of the long-time factors of economic expansion. Competitive condi-

The Policy of High Wages 93

tions in the labor market are aggravated by the increasing mass of
unemployed workers. The capitalist class beats down wages and stand-
ards of living to compensate for the fall in production and profits.

CHAPTER VI

Profits and Wages: State Capitalism

T

HE prophets of the pre-1929 "new capitalism" assumed that the
"pohcy of high wages" had ended the antagonism between wages and
profits. EnHghtened employers, they insisted, recognized that pros-
perity depends upon the workers receiving a "balanced" and "propor-
tional" share in production and productivity gains in the shape of
increasingly higher wages. As that assumption was shattered by the
depression, the prophets of Niraism assume that state intervention will
"balance" wages and profits. But state capitaHsm aggravates, it does
not abolish, this most fundamental antagonism of capitalist produc-
tion.

It is assumed that the real purpose of Niraism, and of the state
capitalism of which it is an expression, is to "balance" wages and prof-
its and production and consumption, and thus "safeguard" prosperity.
But this would mean control of all economic activity. It would mean
control of production, prices, and consumption, of wages, profits, and
income, of the output of capital goods and consumption goods, of
capital accumulation and investment, of industry and agriculture.
All of these elements, under capitalism, affect the antagonism between
wages and profits, and are affected by it. Complete control of economic
activity means the planned economy of socialism: it is impossible
under the antagonistic, profit-making relations of capitalism. Incom-
plete control by the capitalist state, as in Italy and Germany, in
France and Britain, and its American beginnings in Niraism, is an
expression and aggravation of the decline of capitalism. "Controls"
repress instead of liberate economic forces. The attempts to "ease"
one disproportion create or intensify other disproportions. Thus
"easing" the farmers' burdens by inflation raised the prices of the
goods they buy more than the prices of the goods they sell, and
decreased purchasing power among the workers by lowering the
real value of wages. The scope and objectives are limited by the
desire to "save" capitaUsm. Under state capitalism all the essential
relations of capitalist production are retained. Within modifications,
limitations, and "controls," economic activity moves in the same con-

94

Profits and Wages 95

tradictory and antagonistic fashion as under "unfettered" capitalism,
and the movement decrees that wages must lag behind profits.

Wages always lag behind profits. A general rise in wages may
mean more consumption and production, but a general rise is rare,
depending upon falling prices and labor's militancy. The rise ends,
moreover, in the fall of wages relatively to profits as employers in-
crease the productivity of labor and profits. Wage increases are volun-
tarily granted only in exceptional cases: to "key" workers and on piece
rates (afterward cut) to raise the productivity of labor, resulting in an
absolute or relative decrease in total wages and a displacement of
workers. Lx)w wages may not necessarily mean low costs, but low
wages and an increasing productivity of labor mean lower costs and
higher profits.

The fatal flaw in the "policy of high wages" was this : Higher wages
might mean more consumption, production, and profits, but as em-
ployers were free to raise or not to raise wages, the employers who
did not raise wages would gain more than the employers who did,
because in terms of a particular enterprise higher wages mean rela-
tively lower profits.

The fatal flaw in the proposals of Niraism, of state capitalism in
general, is this: If the "fixing" of minimum wages raises labor costs
(although minimum tends to become maximum), profits must
fall, and efforts to increase the productivity of labor to lower costs
and raise profits must be intensified, resulting in an absolute or rela-
tive decrease in total wages and employment.

Profits are not made by paying the workers higher wages. They are
made by forcing down wages relatively to profits, by appropriating
more surplus value, more unpaid labor. If $1,000 million are added to
wages it would increase consumption and production; the capitalists
would make only a very small profit, however, on the additional out-
put and sales. If the capitalists retain the fi,ooo million as profits,
their wealth is correspondingly augmented and its investment creates
new claims upon labor, production, and income. It is not that part
of labor's product (wages) consumed by the workers as means of
subsistence which enriches the capitalists, but that part of labor's
product (profits) converted into capital goods. Capitalist production
means accumulation of capital, an increasing output and absorption
of capital goods, thereby converting profits into capital and permitting
an increasing exploitation of labor. Profits and wages must necessarily
clash and profits beat down wages, whether capitalism is "unfettered"

96 The Decline of American Capitalism

or under "controls." The antagonism is revealed by the movement of
cyclical revival:

In the four months of cyclical revival in April-July 1933, industrial
production rose 50%, total wages 20% and employment 10%. (These
percentages are approximations, but they accurately indicate the trend.)

In the first four months of cyclical revival in 1921 industrial pro-
duction rose 10%, total wages 8% and employment 6%.^

Ip both revivals, employment and wages lagged behind production
(and profits). It was the same after the minor depressions of 1924 and
1927. According to the Wall Street Journal: "It is a natural develop-
ment for profits and production to forge ahead of employment and
wages in recovery,"^ But there was one significant difference: the
unequal rise of production and of employment and wages was much
greater in /pjj than in ig2i. Not only was the inequality not over-
come, it was aggravated.

Part of the greater lag of employment and wages behind output
(and profits) was a result of the sharper cyclical decline of produc-
tion in 1929-33. The minimum labor force maintained was capable of
a larger increase in output than in 1921, without any large increase
in employment and wages. But there were two more important fac-
tors. One was the higher productivity of labor, which, according to
the National Bureau of Economic Research, rose 12% in 1929-32 com-
pared with only 7% in 1927-29;^ it rose again sharply in 1933. The
other factor was the strong drive to "earn" profits to resume or increase
dividends and strengthen depleted financial reserves. Profits shot up
almost magically. In the first quarter of 1933, 205 large corporations
in manufactures, mining, and services, with a "net worth" $7,443
million, had a deficit of $14,831,000; they made profits of $86,878,000
in the second quarter and of $129,576,000 in the third quarter. In the
first nine months of 1933 their profits rose to $200,367,000 compared
with $30,266,000 in the previous year. The net income of 125 corpora-
tions rose from $57 million in 1932 to $246 million in 1933, an increase
of 331%. In the case of General Motors, profits rose from $165,000 to
$83,214,000.* The rise in profits soared beyond the small rise in pro-
duction and the smaller rise in employment, and wages. And in part
of the third and all of the fourth quarter, higher profits were ac-
companied by decreasing production, employment, and wages.

The NRA was not in action in April-June, when employment and
wages lagged behind the inflationary rise in production and profits.
But the same condition prevailed in July and after, when the NRA
was in action. The NRA, moreover, shared direct responsibility for

Profits and Wages 97

the lag of wages behind production and profits. Its wage policy, in
spite of the pretentious claims, was in accord with the employers'
interests. It set terribly low minimums, restrained workers on strike
for higher wages, and cut real wages by the inflationary rise in prices.

The policy of fixing minimum wages was belated reformism. Al-
ways limited and largely illusory, it might have had some value during
prosperity, in the epoch of the upswing of capitalism. In depression
and decline, the policy merely "fixes" wages at prevailing low levels.
Only a small part of the workers were affected by the minimum
wages. Their practically permissive character, moreover, allowed em-
ployers to evade paying the minimums. Evasions involved all sorts of
contemptible expedients and merciless pressure upon the most help-
less workers, particularly Negro and "alien" workers. As bad as the
evasions was the character of the minimums. In no case were they
even an approach to a decent standard of living. In all cases the
minimums were based on depression wage levels. In many cases they
were below prevailing average wages.

There was some increase in some wage rates, mainly among the
most exploited workers and only in comparison with the low depres-
sion levels; but that was offset by the lesser number of hours worked
and the rise in the cost of living. In 312 New England companies, 90%
operating under NRA codes, weekly hours worked fell 16% from
June to October, 1933; average weekly earnings rose only 6%. Accord-
ing to the NRA Administrator in New York City, employment rose
20% from August i to November i, payrolls only 13%. By November,
hourly wage rates in sixteen producing and distributing industries had
risen 5V2C and average weekly earnings 3% over 1932. The low level of
wages in many cases is demonstrated by one 'of the major reasons for
the Civil Works Administration's liquidation of its make-work ac-
tivities which began in January, 1934; it was, according to the New
York Post, "bowing to the demands of employers, particularly in the
South, who say workers are quitting them to get on the government
payroll at better wages." ^ The CWA paid average wages of $9 to $14
weekly to the great majority of its workers!

The minimum wages tended, moreover, to become the maximum,
a complaint made again and again by labor leaders, who did little
about it. This affected all categories of workers. Among "white collar"
workers, according to the New York University Employment Bureau,
the NRA drove down wages: "The $20 to $22 job is now about a $15
job, because employers tend to keep their wages around the NRA
minimum."^ Because of their unorganized condition, the technicians

98 The Decline of American Capitalism

were hit hard. In one code qualified chemists got $14 weekly; in
another, technical employees got 35^ to 45^^ an hour. "The technicians
now find themselves in many cases receiving about half the wages o£
skilled labor under the NRA codes. No provisions have been made
for them in the codes of many industries, the technicians being con-
veniently regarded as 'superintendents' or 'executives.' In many cases
the men are receiving only the minimum wage provided for unskilled
labor.'"^ The result of the minimum wage "fixing" was a tendency
to break down the differentials between skilled and unskilled and semi-
skilled workers. It is desirable to decrease the differentials: they are
largely artificial, altogether too great, and they create antagonisms
between different groups of workers. But the NRA breaks down dif-
ferentials not by raising the wages of the poorer-paid workers but by
lowering the wages of the better-paid — a development characteristic
of the decline of capitalism.

Real wages fell considerably because of the inflationary rise in prices
and the cost of living. Food prices in December, 1933, were 7% higher
than one year earlier. On December i, 1933 the retail price index was
26.8 higher than in May; 10% less units were sold in 1933 than in the
previous year.^ Yet production was 10% higher, mainly because of
increases in inventory stocks in anticipation of more inflation.

After nearly four years of depression the workers began to act. There
was an upsurge of strikes for union recognition and of strikes for
higher wages. But the NRA acted as a brake upon the efforts of the
workers to raise wages. A favorite answer of employers to workers
striking for higher wages was: "The demands are far beyond limits
fixed by the code." ® Thus strikers were put in the position of fighting
the government, as limits in the code were fixed by the government
apparatus of the NRA. The codes were framed by representatives of
capitalist government and capitalist industry; in most cases organized
labor did not even get the meaningless courtesy of "advisory" partici-
pation. Employers appealed to the NRA against strikes, and its pres-
sure was used to drive the workers back to work. Strikes were not
made illegal, but the apparatus of the NRA was mobilized to dis-
courage, prevent, and "settle" strikes. This included a National Labor
Board to mediate, that is, suppress strikes. It was made clear that strikes
were an "interference" with the recovery program. The discouragement
of strikes and the driving of strikers back to work was assisted by
the reactionary labor leaders, who considered the National Industrial

Profits and Wages 99

Recovery Act a "charter of labor" — the same leaders who in 1923-29
extolled the "policy of high wages" and the "new capitalism."

Labor leaders and liberals declared that Niraism's "recognition" o£
trade unions and collective bargaining was a great victory for the
workers. But "recognition" was tied up with the NRA, an expression
of state capitalism. It represents the imposition of state controls over
independent unionism and the lowering of wages in the epoch of the
decline of capitaUsm.

One of the motives of "recognition" was to prevent labor revolts
and an upsurge of radical forces. The NRA program was beset with
dangers. Revival was slow and incomplete, wages small and prices
rising. Labor might revolt. It had to be cajoled and shackled. Direct
repression was dangerous under the prevailing conditions: labor revolts
might mean disaster. Hence the resort to cajolery and shackles. Mil-
lions spent on relief and "make work" schemes might make workers
forget the billions handed out to corporations. "Recognition" of trade
unions and collective bargaining would satisfy and intrench the union
bureaucracy, which would act — and did — as a bulwark against an
upsurge of labor militancy. At the beginning, moreover, state capitalism
clings to formal democracy, decks itself in the older ideology, attempts
to rule by "balancing" class interests.

Another motive of "recognidon" was to secure mass support for the
NRA and force it upon employers resisting its "controls." Not all
employers accept new developments, even when they are in their own
interest, particularly if disadvantages are imposed upon some groups
of employers. (The NRA increases the differentials in favor of the
larger employers and corporations over the smaller.) State capitalism
may use compulsion over certain capitalists or groups of capitalists.
The struggle is not, however, one of government and labor against the
capitalists. It is between capitalists who cling to old ideas and those
who see the necessity of changes, with the government emphasizing
the new conditions and new needs in the interest of the capitalists as
a class. To accomplish its ends, government may use labor and liberal
sentiment — temporarily, within limits, and under safeguards. Thus
strikes, in which workers' blood was shed, and threats of strikes were
a factor in the operators' acceptance of the bituminous coal code.

There was danger, however, in mass support secured by union
"recognition" and in promises, accepted seriously by the workers, of
higher wages. The NRA acted accordingly.

Recognition was virtually limited to existing unions. The closed

100 The Decline of American Capitalism

shop was rejected, because, according to General Hugh Johnson, NRA
Administrator, it "would amount to employer coercion which is con-
trary to law . . . especially if the union did not have ioo% member-
ship." This was driven home by H. I. Harriman, president of the
Chamber of Commerce of the United States: "The closed shop is
prohibited by the Recovery Act." Under the NRA, there was, accord-
ing to the National Industrial Conference Board, an increase of i8o%
in the number of company unions of one form or another; of 3,314
manufacturing and mining concerns employing 2,585,740 workers,
653 concerns, employing 1,163,575 workers had company unions, and
only 416 concerns employing 240,394 workers recognized trade
unions.^°

The NRA developed an apparatus to control labor, prevent strikes,
and restrict independent unionism. This appears in the mediation
functions of the National Labor Board. It appears more clearly in the
labor provisions of the Code of Fair Competition for the Bituminous
Coal Industry .^^ In the preliminary hearings to frame the code, sugges-
tions to give labor "adequate representation" were brushed aside by
the operators' objections. The code set up six divisional code authori-
ties, all of whose members (except one, with no vote, appointed by
the President of the United States) are representatives of the coal
operators. No provision was made for a labor representative, nor for
labor representatives on the governing body of the industry, the
National Bituminous Industrial Board. Six labor boards, of three
members each, were set up, all the members appointed by the Presi-
dent, one from nominations by "organizations of employees," one from
nominations of the divisional code authorities (on which only the
employers and the government are represented), and one "a wholly
impartial and disinterested representative of the President." The code
grants the operators measurable self-government in the form of what
are virtually cartels, with powers to "prevent destructive price-cutting,"
the government reserving, in state-capitalist fashion, the right to inter-
vene. But labor is subordinated to the employers and the state: even
labor's one-third representation on the labor boards is under control
of the President. The President can always find an amenable "labor
leader." This was demonstrated during one of the coal strikes involv-
ing 75,000 workers. At one o'clock in the morning President Roosevelt
telephoned to Philip Murray, vice-president of the United Mine Work-
ers of America. This was the conversation:

Roosevelt: Philip, I want you to get these men back to work.

Profits and Wages loi

Murray: If there's anything in God's world I can do for you, I
will be glad to try.

In reporting the conversation to the strikers, Murray added:

"Any union or union officials who refuse to obey the President's
command will not live very long." ^^

A formal protest was made by William Green, president of the
American Federation of Labor, and John L. Lewis, president of the
United Mine Workers of America, who declared that "the labor
boards are meaningless and unsatisfactory to labor." ^^ The protest
was unavailing. And the boards are not meaningless, they are an
employer-state apparatus for the control of labor. The labor leaders
then characteristically shifted their objective to a compromise, empty
in itself but capable of being called a victory. They asked, and secured
after much shilly-shallying, representation on the National Bituminous
Coal Board in the person of John L. Lewis.* But of the board's mem-
bers nine are direct representatives of the employers; five are appointed
by the President, one for each divisional code authority on which
employers alone are represented; and two are Presidential appointees
at large.^* Thus labor has one out of sixteen members on the National
Coal Board, he is appointed by the President, and the appointment is
not compulsory. It was a famous victory!

As strikes multiplied and the NRA felt more sure of itself, it moved
toward the outlawry of strikes. This policy and its threat were ex-
pressed belligerently by General Johnson at the convention of the
American Federation of Labor:

"The very foundations of organized labor are at test here and now.
. . . Labor does not need to strike under the Roosevelt plan. . . . The
plain, stark truth is that you cannot tolerate the strike. ... In the
codes you are given complete and highly effective protection of your
rights." ^^

These developments are wholly in accord with the state-capitalist
nature of Niraism. The NRA may change its forms or be replaced by
another apparatus, but the labor-capital slant of state capitalism will
remain the same.

The controls imposed upon capital are in the interest of capital.

* A few days after the coal code was adopted, Lewis signed a "collective bargain-
ing" agreement with the non-union operators, which grants employers the exclusive
right to hire and fire, prohibits strikes, and adds: "Under no circumstances shall the
operators discuss the matter under dispute with the mine committees or any representa-
tives of the United Mine Workers of America during a suspension of work in violation of
this agreement." New York Times, September 22, 1933.

102 The Decline of American Capitalism

They release capital from restrictions, particularly the anti-trust laws,
and implement its powers over industry and labor.

The controls imposed upon labor are not in the interest o£ labor.
They institutionalize labor's subordination to capital, progressively
deprive unionism of its independence, and tend to outlaw strikes,
labor's most effective means o£ struggle for higher wages.

There is no contradiction in the NRA "recognizing" trade unions
and collective bargaining while imposing safeguards and controls
which limit labor's independence and action. For state capitalism is, in
one aspect, an attempt to "balance" class interests, since it still oper-
ates within the confines of bourgeois democracy. It must make con-
cessions— if only in words — to the different classes. Thus unions and
collective bargaining are recognized, labor is given representation, if
only advisory, on arbitration and other tribunals, labor laws are
adopted, and labor code authorities are set up. In pre-fascist Germany,
where state capitalism was highly developed, a whole labor juris-
prudence arose, a "constitutional labor order," considered by the
social-democrats a "step toward" socialism (it ended, however, in
fascism). But the whole process proceeds within the limits o£ capital-
ism and on the basis of the state, and is consequently dominated
by the economic and political weight of the capitalist class. The process,
moreover, is an expression of the decline of capitalism, when conces-
sions— if only relief — are a burden upon capital. As state capitalism
attempts to reconcile economic and class antagonisms, they become
constantly more acute. Hence the "recognition" of labor is accompanied
by laws and acts for an increasing coercion of labor. The role of
the state as strikebreaker becomes more necessary and is strengthened.
In the epoch of the decline of capitalism, both employment and wages
fall. The workers resist. Resistance tends to become revolutionary, as
the burdens of decline are thrust upon the workers. The state inter-
venes more ruthlessly to deprive labor of the possibility of independent
action and revolutionary initiative. This policy of suppression assumes
its most complete and brutal forms under fascism. . . .

The upward movement of real wages in 1921—22 was conditioned
by the militant struggles of labor against wage cuts. In 1933-34,
although there was an upsurge of labor miHtancy, strikes were broken
and the results limited by the NRA apparatus for the suppression of
labor. (Later, distrustful of the NRA, labor was more successful.)

The upward movement of real wages in 1921-22 was conditioned by
the fall in prices, which increased the purchasing power of wages. In
1933-34, real wages fell because of the desperate resort to inflation and

Profits and Wages 103

the tendency of the NRA to maintain money wages at low, fixed
levels.

The upward movement of real wages in 1921-22 was conditioned by
the expansion of production; this transformed cyclical revival into
a comparatively high level of prosperity. Revival seized upon the pro-
duction of capital goods, the sustaining force in prosperity, because of
the working of long-time factors of expansion. In 1933-34, revival was
speculative and incomplete, it was not forced upward by an increasing
production of capital goods, which lagged behind even the small in-
crease in production. This was a result of exhaustion of the long-time
factors of expansion, of the decline of American capitalism.

Niraism insists that its objective is to decrease unemployment and
increase purchasing power. But the objective and the means are
limited by the nature of capitalist production, and limited still more
by the conditions of capitalist decline. In previous cycUcal revivals,
employment and purchasing power rose because of the onward sweep
of recovery. The incomplete character of recovery forces Niraism more
and more to expedients. Unemployment is "decreased" by "spread-
ing" work and "making" work, measures with very definite limits.
Purchasing power is "increased" by slightly raising total wages and
lowering average wages: a peculiar way of increasing purchasing
power, but profitable to the capitalists. "It is," says a bourgeois econ-
omist, who urges drastic wage cuts, "the amount of the total wage
bill and not the height of the average wage which affects the aggregate
volume of spending. Indeed, two laborers each receiving $3 per day
would be more certain to spend at once nearly all their income than
would one wage-earner receiving $6 per day, for their wants would
be more urgent." ^'^ The smaller the wage the larger the proportion
spent on immediate consumption; the "higher" the wage the larger
the proportion saved, and labor's savings are of course unnecessary
where there is an abundance of idle capital or of unused capital equip-
ment. Consumption is to be "increased" by depriving employed work-
ers of that part of their wages which they might save and pay it to
newly employed workers, forcing all wage income to be spent. Thus
standards of living are lowered under the conditions of the decline of
capitalism. Wages are being cut in all capitalist nations. The fascist
government of Italy orders another cut in wages and salaries, after the
cut in 1930 of 10% to 12%, in order that Italian capitalists may compete
more effectively in the world market, where they are being "under-
sold." Compensation is offered in the form of a simultaneous and
equal cut in the prices of food, rent, and transportation, but this in

104 The Decline of American Capitalism

practice never equals the cut in wages. In 1932, the German employers
were permitted to pay newly employed workers about one-half of the
prevailing wages. This policy of the von Papen government took the
form, in the policy of its fascist successor, of permitting employers to
cut the wages of employed workers if the "saving" was used to hire
additional workers; the Hitler government justified the cuts as a
means of "increasing" employment and "maintaining" payroUs.^^
These are the desperate resorts of capitalism tormented by decline and
trying to save itself by thrusting the burdens of decline upon the
workers.

Wages and employment lagged behind production and profits in
the revival of 1921-22, in the prosperity of 1923-29, and in the "revival"
of 1933-34. Nor was the lag a result of the NRA in its early stages
depending more upon "persuasion" than "force," placing faith in the
voluntary action of "enlightened" employers, much in the manner of
the "Golden Age" of pre-1929 prosperity. As Niraism becomes full-
fledged state capitalism and "controls" are stiffened, the clash between
wages and profits is sharpened. State intervention to "fix" wages and
prices, and the general tendency of profits to fall under the conditions
of decline, results in a greater drive to improve technological efficiency
and raise the productivity of labor, which are not under control. Con-
sidering the problem from the angle of price-fixing, a bourgeois econ-
omist concludes: "Prices construed as 'fair' . . . will put a premium
on efforts to lower the cost of production for the sake of much higher
profits. This will be done by investing more capital in order to increase
the productivity of labor." ^^ That is assuming that prices are fixed
downward. They may be fixed upward, and thereby directly increase
profits and indirectly decrease wages. But as state capitaUsm operates
in the orbit of the decline of capitalism, the tendency will be for
profits to decrease. This sharpens the clash between profits and wages
and multiplies capitalist efforts to lower wages in favor of profits.
The government intervenes directly to cut wages, as in Germany and
Italy.

Wages always lag behind profits. The lag assumes three major
forms:

In the epoch of the industrial revolution and for some time after-
ward, wages fell but profits rose greatly.

In the epoch of the upswing of capitalism, wages tended to rise but
profits rose still higher.

In the epoch of the decHne of capitalism profits tend to fall, but

Profits and Wages 105

wages fall still more; profits move up relatively as v^ages move down-
ward.

In the epoch of the upswing of capitalism there was a relative fall
in the workers' standards of living. In the epoch of decline there is
an absolute fall in the workers' standards of living. This means a
return to the state of "increasing misery" characteristic of early capi-
talism, aggravated by all the burdens of imperiaUst wars. . . .

The conditions of capitaHst decline, of which Niraism is an expres-
sion, limit the expansion of industry and the opportunities for
profitable investment of capital. Profits tend to fall. The fall is all the
greater because of the burdens of taxation imposed upon industry.
These burdens result from the state pouring public money into in-
dustry, measures to safeguard profits, relief for the constantly growing
masses of the needy unemployed, an increasing bureaucracy, and
multiplication of the costs of armaments and war. The efforts to save
capitalism are of a strangulating nature. Above all, they strangle the
workers. All pretense of a policy of high wages is abandoned. The
pack begins to bay in one swelling chorus: "Cut wages!" In the name
of theory the economists of France, Germany, and Italy insist that
wages must fall. W. A. Beveridge, A. C. Pigou, Henry Clay, and
other English economists insist that wages must fall. In the United
States, Prof. W. I. King * and others insist that wages must fall. True,
these American economists are now overwhelmed by the pretentious
"high wage" chorus, but they will come into their own. And the
economists base their arguments upon what is essentially the theory
of laissez-faire economics, which was never very real and is almost
wholly unreal in the age of monopoly capitalism and imperialism.
State capitalism justifying wage cuts in the name of laissez-faire! The
economists will generously admit that high wages are good, that they
are a human and cultural necessity. But they must fall because of
inexorable economic necessity. If wages fall employment will rise. Thus
the economists abandon the hope of progress, and offer only the pros-
pect of lower standards of living. And they forget that lower wages
and lower costs are not necessarily translated into lower prices and
higher demand, particularly in the epoch of the decline of capitalism.

* King is an "objective" economist whose objectivity completely accepts and justifies
capitalism. He considers economics a "science," but a science which refuses to go
beyond the relations and needs of capitalist production. It is an interesting phenomenon
that the more "objective" the economist, the more he is an apologist of capitalism.
Thus King urges, on what he insists are wholly scientific and objective grounds,
that wage cuts are necessary to revive prosperity.

io6 The Decline of American Capitalism

The economists insist that lower wages and lower costs are necessary
to increase foreign trade; but they forget that all capitalist nations
are lowering wages and costs and raising tariff barriers. Wages must
be cut to increase profits and stimulate the production of capital goods;
but capitalist industry is now capable of absorbing only a decreasing
output of capital goods. The arguments of the economists are mere
apologetics.

As profits fall or tend to fall, in the epoch of the decline of capital-
ism, wages are driven down to maintain profits. Wages can rise only
when there is an unusual expansion of industry. As expansion becomes
limited, wages must fall, absolutely and relatively. Increasingly larger
numbers of workers become permanently unemployed. Their pressure
tends to lower the wages of the employed workers and is used by the
employers to beat down wages. Total and average wages fall. Low
standards of living are lowered still more. The capitalist state imposes
upon the workers as much as it can of the burdens of higher taxation.
Relief and the social services are cut, and the bourgeois economists
manufacture theories to justify the cut. The conditions of decline tor-
ment not only the workers, but constantly greater circles of "white
collar" workers, professional workers, small businessmen, farmers. Out
of these developments arise sharpened class antagonisms, the struggles
of capitalism, fascism, communism: an era of social explosions and
change.

Summary

Jl HE prosperity which flourished in 1923-29 was the result of an
unusual combination of the long-time factors of expansion. In the
revival of 1922, building construction, in which the war had created
a great shortage, led the upward movement. It was invigorated by the
development of electric power and the automobile and of new or
comparatively new industries such as radio, moving pictures, and
chemicals. The old stimulus of the undeveloped inner continental areas
was partly replaced by the export of capital and imperialism, an ex-
ploitation of the international long-time factors of expansion.

These developments produced increasingly higher profits and their
conversion into capital by means of an increasing output and absorp-
tion of capital goods, the basis of prosperity. Both the investment of
capital and the growth of industry's capital equipment proceeded on
an immense scale.

As is usual in prosperity (it is a very condition of its being), the
profit-makers scored the largest gains. The farmers were wholly ex-
cluded, and their exclusion was itself an element of capitalist pros-
perity. While the workers' real wages rose in 1921-23, because of
falling prices, they were practically stationary thereafter. Wages fell
relatively to profits. Yet the productivity of labor and surplus value
rose more than in any other recent period in American history.

There was, thus, no "policy of increasingly higher wages" in the
pre-1929 prosperity. It was a policy of higher profits. And the pretense
was completely exposed by the depression, when wages were slashed
mercilessly. But the policy reappears in a slightly different form in the
ballyhoo of Niraism: the government is to "fix" wages, to "balance"
profits and wages in the interest of an everlasting prosperity. The
practice of state capitalism is everywhere, however, one of protecting
profits, not wages. And under the reign of Niraism wages are falling.
Wages must fall in the epoch of the decline of capitalism because the
making of profits and their conversion into capital is restricted, as
exhaustion of the long-time factors of expansion tends to lower pro-
duction and profits. This tendency may be interrupted by short-lived
spurts of prosperity, by the "black magic" of imperialism and war.

107

io8 The Decline of American Capitalism

The interruptions will be temporary and eventually disastrous, in-
tensifying the decUne of capitalism.

Whether "unfettered" or under "controls" capitalist production im-
poses definite limits upon the rise of wages. The limits move down-
ward in the epoch of decline. Underlying the limits, both in prosperity
and depression, in upswing and decline, is the accumulation of capital
and its contradictions, which constitute the dynamics of capitalist
production.

PART THREE

Contradictionsfof Accumulation

Introductory

Jl ROFiTS and wages clash, and profits beat down wages, because the
accumulation of capital is the primary aim and driving force of cap-
italist production. In its origins, development, and decline, capitalism
is inseparably identified with accumulation.

The accumulation of capital means the conversion of profits into
capital. Profits are realized surplus value, the surplus product of the
workers which the capitalists appropriate through ownership of the
means of production. As surplus value and profit are unpaid labor,
wages and profits move in inverse ratio: the lower the one, the higher
the other. The capitalists consume only a part of the surplus product
they appropriate; if they consumed it all, there would be no ac-
cumulation and no expansion of industry, and, consequently, no new
profits yielded by new capital. A part of the surplus product must be
transformed into capital, which takes the form of capital goods to
produce more profits. Thus accumulation depends upon the capacity
of industry to make profits and to transform them into capital by
means of an increasing output and absorption of capital goods. Capital
goods, the growth of capital plant, multiply and secure capitalist wealth
and its claims upon labor, production, and income.

Accumulation is accompanied by the expansion of production and
an increase in its scale of operation. Where the handicraft worker
dominated his tools and simple machines, working up limited amounts
of raw material, the worker in capitalist industry is dominated by the
massed mechanical equipment of production, working up almost un-
limited amounts of raw material. The increase in the scale of pro-
duction means larger and more efficient equipment in giant plants,
lower labor costs, greater output, lower prices, and higher profits.
Large-scale production augments the accumulation of capital, which
in turn reacts upon and augments the scale of production, capital
investment, and accumulation.

One result of accumulation and its transformation of industry is
the relative decline of older agricultural products as industrial raw
materials in favor of newer products, particularly minerals. The change
involves, in its economic and political implications, the subjugation

III

112 The Decline of American Capitalism

of agriculture by capitalist industry, and the exploitation of agrarian
classes and regions by capital.

Another result of accumulation and its transformation of industry
is the shift from muscular to mechanical power and a constantly
greater dependence upon machines and apparatus. Modern industry
is highly mechanized, requiring tremendous masses of equipment
and materials. This involves a change in the composition of capital,
that is, in the proportional amounts of labor, equipment, and mate-
rials used in industry. Small-scale industry w^as characterized by a
low composition of capital, the preponderance of variable capital
(wages, labor) over constant capital (equipment, materials). Large
scale industry is characterized by a higher composition of capital, the
preponderance of constant over variable capital. The use of increasingly
larger masses of equipment and materials multiplies the productivity
of labor and the output of industry. The higher the composition of
capital, the more labor is displaced relatively to the other factors of
production. Wages fall and profits rise. But both cause and eifect
assume antagonistic forms and provoke disturbances of the most seri-
ous nature. For the change in the composition of capital underlies
all the contradictions of accumulation, and these contradictions create
the inescapable instability and limited character of capitalist produc-
tion and prosperity.

CHAPTER VII

Accumulation and the Composition
of Capital

vLfiAPiTALisT industry is unceasingly driven to force up profits by re-
ducing labor costs and enlarging the scale of production. The resulting
increase in constant capital and relative decrease in variable — the
higher composition of capital — are most fully apparent in the struc-
ture of American industry (the most highly developed expression of
capitalism) .*

In American manufactures, wages rose from $237 million in 1849
to $2,320 million in 1899, or 866%; raw materials (including auxiliary
materials and power) from $555 million to $7,343 miUion, or 1,223%;
capital, including the investment in machinery, apparatus, and build-
mgs, from $533 million to $9,835 million, or 1,758%. In 19 14, capital
investment was 154% higher than in 1899, raw materials 118% higher,
and wages 103% higher.^ The capital figures are crude, but they
indicate the upward trend more than the rise in wages and raw
materials. From 1849 to 1919, the fixed capital per worker rose from
$560 to $5,000, a ninefold increase compared with only a fourfold
increase in the average worker's money (not real) earnings. After
seventy years of change in the composition of capital the worker in
manufactures set in motion probably seven times as much capital
equipment and five times as much raw material. While there was a
decrease in the ratio of wages to constant capital and output, there
was also a decrease in the ratio of output to fixed capital. This was
again the case, naturally, in 1923-29 (Table I): constant capital,
particularly the fixed portion, increased more than wages and output.

* Precisely because it is the most highly developed, American industry offers the
fullest confirmation of the analysis Karl Marx made of the laws of capitalist produc-
tion. It is one of the tasks of this book, using the American statistical material, the most
abundant in the world, to make a quantitative, as well as qualitative, demonstration
of the Marxist conception of the fundamental aspects of capitalism — and this despite
the tendency, on the part of bourgeois economists, to sneer at "Das Kapital" as an
"outworn economic text-book." Marx, in fundamental theory and analysis, is more
contemporary than contemporary bourgeois economists.

114

The Decline of American Capitalism

TABLE I

Changes in the Composition of Capital, Manufactures, igi^-ig

Constant Capital

Variable Capital

FIXED

RAW

VALUE

YEAR

CAPITAL*

(millions)

INDEX

MATERIALSf

(millions)

INDEX

WAGES

(millions)

INDEX

OUTPUTt

(millions)

INDEX

1923

$21,910

100. 0

$13,200

lOO.O

$11,009

lOO.O

$39,050

lOO.O

1925

25.457

116.6

13,600

103.0

10,730

97.4

40,400

103.6

1927

26,007

II 8.7

13.450

IOI.9

10,849

98.4

41,000

IO5.I

1929

28,235

128.9

15.450

I 17.0

11,621

105.7

47,100

120.8

•Real estate, buildings, and equipment; the fixed capital for 1923 is estimated on the
basis of the 1924 figure of $22,410 million.

tLess duplications.

Source: Fixed capital — Bureau of Internal Revenue, Statistics of Income for the respec-
tive years; wages, materials, and output — Department of Commerce, Census of Manufac-
tures, 1929, V. I, p. 15, and Statistical Abstract of the United States, 1931, p. 483.

In 1923-29, constant capital in manufactures rose over four times
as much as variable capital: 24.4% compared w^ith 5.7%. Fixed capital
rose five times as much as v^ages, 70% more than materials and 40%
more than output. This w^as a considerably greater change in the
composition of capital than in 1899-1914, w^hen the increase in fixed
capital ranged only up to 40% more than in the other factors. The
average w^orker in 1929, w^hile receiving practically the same wages
as in 1923, set in motion nearly one-third more fixed capital and one-
sixth more materials and produced one-fifth more output. The pro-
portion of wages to fixed capital fell from 51.4% to 41.2%, of wages
to output from 28.2% to 24.5%, and of wages to "value added by
manufacturing" from 42.7% to 36%. Wages and labor costs fell, profits
rose.*

Wages must decrease as the composition of capital becomes higher:
larger capital investment requires larger profits, and more capital is
invested in the constant than in the variable form. Wages may fall
relatively. They may also fall absolutely (as in 1925 and 1927) if an
unusually rapid improvement in technological efficiency is not com-
pensated by a sufficient increase in industrial expansion and employ-
ment. As wages are the price of labor power, of the worker's skill
and muscle and nerves, the fall in wages involves displacement of

* Labor costs in 1929 were 9.5% lower than in 1923, overhead costs and profits 10.6%
higher. The elements of cost as decimal fractions of value output became: materials .663,
overhead costs and profits .189, labor costs .148. Frederick C. Mills, Economic Tendencies
in the United States (1932), p. 409.

WAGES

CAPITAL

95-

1<\XZ

na5

WZT

\U<\

V. CHANGES IN THE COMPOSITION OF CAPITAL.

ii6 The Decline of American Capitalism

labor and unemployment. Where displaced workers are absorbed by
the expansion of industry the displacement is relative. But it tends
to become absolute: in every year except 1929 the number of workers
in manufactures was lower than in 1923, and in all years lower than
in 1919. Nor were lower total wages and employment in manu-
factures offset by larger wages and employment in other industries,
which are also affected by changes in the composition of capital.
In mining, wages fell from $1,161 million in 1919 to $1,066 million
in 1929, or 8.2%, and workers from 888,355 ^o 788,357, or 11.3%;
installed power, a rough measure of fixed capital, rose 42%, while
output rose from $2,225 million to $2,392 million, or 2.4%. On the
railroads, wages and salaries fell from $3,004 million in 1923 to $2,896
million in 1929, or 3.6% (the fall in wages alone was much greater)
and employees from 1,857,674 to 1,660,850, or 10.6%; capital invest-
ment rose from $21,372 million to $25,465 million, or 19.1%, and
net operating income from $974 million to $1,262 million, or 29.6%.^
In the oil industry and in electric light and power, capital investment
and profits rose more than wages and employment. While there was
some increase in the wages of the workers as a whole, it was smaller
than the increase in profits and property income in general. It was,
moreover, accompanied by the absolute displacement of 1,000,000
workers, the average yearly number of unemployed workers in 1923-29
approaching 2,000,000.

Thus the higher composition of capital is the objective expression
of the inner urge of capitalist production to displace labor and the
wages of labor. In the epoch of the upswing of capitalism, the dis-
placement was relative; it becomes absolute in the epoch of decline.
The most characteristic expression of the decline of capitalism is the
misery of an increasing "surplus population" of unemployed and
unemployable workers (including professionals), who barely exist on
the "rations" of reluctant charity, meager unemployment insurance,
or poor relief. . . .

The higher composition of capital means an increase in the pro-
ductivity of labor. More of the work of production is performed,
and more efficiently, by mechanical equipment, which lessens labor
and permits the transformation of larger amounts of raw material
into goods. The higher composition of capital is, therefore, an ex-
pression of economic progress, the basis of potential plenty and leisure
for all. But under capitalism it is identified with the urge to displace
labor, lower wages, and raise profits. Because of this the higher com-
position of capital simultaneously and antagonistically:

The Composition of Capital 117

1. Imposes limitations upon the purchasing power and consumption
of the workers. Wages always lag behind profits, and wages always
fall relatively to output and profits. This measurably restricts the
growth of markets, creates disproportions in the output of means of
production and means of consumption, and sets in motion the forces
of cyclical crisis and breakdown.

2. Imposes limitations upon the production and realization of sur-
plus value. The decrease of variable capital (wages) in favor of con-
stant capital (equipment and materials) limits the production of
surplus value in proportion to the total invested capital; while the
increase in the output of goods and the restriction of mass purchasing
power and consumption saturate markets and lower prices to un-
profitable levels, thereby limiting the realization of surplus value
in the form of profits. The mass of profits rises, but the rate of profit
on the total invested capital tends to fall.

Thus the higher composition of capital is the basic objective factor
in the contradictions of accumulation and of capitalist production
and prosperity.

CHAPTER VIII

The Fall in the Rate of Profit

Jl HE fall in the rate of profit manifests itself as a tendency and not
in absolute form. For capitalist production struggles incessantly to
prevent the rate from falling and to raise it. Both the falling tendency
and the struggle against it condition the most fundamental aspects
of capitalist development.

The tendency of the rate of profit to fall is determined by changes
in the composition of capital, the increase in the productivity of labor,
and the conditions under which surplus value and profit are produced
and realized. A fall in the rate of profit may result from causes w^hich
do not involve changes in the composition of capital, such as a rise
in the prices of raw materials not offset by a general price rise,
excessive competition (the old composition being unchanged) forc-
ing prices down to unprofitable levels, or a restriction of markets
and sales due to changes in consumer habits and demands. But these
are temporary and limited in scope. The primary cause of the tendency
of the rate of profit to fall is the change in the composition of capital
and the forces thereby set in motion.

Capitalist enterprise continually strives to raise profits by increas-
ing the productivity of labor. This is done by enlarging the scale
of production and displacing labor with more efficient equipment
working up larger amounts of raw materials, thus lowering the
proportion of variable to constant capital. The capitalists, who, in their
calculations, convert values into prices of production, i.e., into costs,
imagine that constant capital itself produces profit because they in-
clude a profit on its consumed portions in figuring costs and selling
prices. But as only its own used-up value is incorporated in com-
modities, constant capital produces no new value and no surplus
value; labor, living labor alone produces surplus value, of which
profit is the realized form. If the rate and mass of surplus value
remain the same after an increase in constant capital, a fall ensues
in the rate of profit because the surplus value is now a smaller ratio
of a larger total of invested capital, on which the rate of profit is
calculated. It can be otherwise only if the elements of constant capital
are considerably cheapened; in this case the old or even a higher

ii8

The Fall in the Rate of Profit 119

rate of profit may be secured. The higher composition of capital,
however, increases the rate of surplus value: while the living labor
incorporated in a commodity falls, the unpaid portion, represent-
ing the surplus value, rises. But this rising tendency of surplus
value is accompanied by antagonisms which set in motion its opposite,
the tendency of the rate of profit to fall. The rise in surplus value
produced by the higher productivity of labor can result in a rising rate
of profit only under certain definite conditions: // the rise in the
value of labor's surplus product is greater than the rise in the value
of constant capital, // all -the new fixed capital is set in motion by
labor, // prices and profits are not lowered by competition, // markets
absorb the enlarged output of commodities and permit complete
reahzation of surplus value and profit.* It is the fact that these con-
ditions are rarely, if ever, present simultaneously which activates
the tendency of the rate of profit to fall.

Underlying the falling tendency of the rate of profit is an increase
in the productivity of labor and in the scale of production, which
result in a larger mass of commodities and profit. But capital in-
vestment tends to increase more than output, more than the reahza-
tion of surplus value and profit. If the rate on the larger mass of
profits, calculated on a still larger mass of capital, falls, there follows
an accelerated investment of capital to overcome the fall in the rate,
by an increase in the mass of profits. Again there are changes in
the composition of capital, greater productive capacity and output,
aggravating the contradiction between the absolute development
of production and the limited conditions of consumption. This con-
tradiction exerts a downward pressure on the rate of profit in two
ways:

Prices and profits are lowered by the intensified competition result-

* "Production of surplus value is but the first act of the capitalist process of produc-
tion, it merely terminates the act of direct production. . . . Now comes the second act
of the process. The entire mass of commodities, the total product, which contains a
portion which is to reproduce the constant and variable capital as well as a portion
representing surplus value, must be sold. If this is not done, or only partly accomplished,
or only at prices which are below the prices of production, the laborer has been none
the less exploited, but his exploitation does not realize as much for the capitalist. It may
yield no surplus value at all for him, pr only realize a portion of the produced surplus
value, or it may even mean a partial or complete loss of his capital. . . . Too many
commodities are produced to permit of a realization of the value and surplus value
contained in them under the conditions of distribution and consumption peculiar to
capitalist production." Karl Marx, Capital, v. Ill, pp. 286, 303.

120 The Decline of American Capitalism

ing from an output of commodities beyond the limited conditions
of consumption of existing markets.

An excess capacity of production arises, whose costs are a burden
upon realized profits.

Excess capacity is peculiar to capitalist production, which tends to
develop the power to produce beyond the power to consume. (This
also affects excess capacity in the industries producing capital goods,
as in final analysis the demand for these goods depends upon the
ability of the industries producing consumption goods to dispose
of an increasing output.) It is not a probjem in itself, but the con-
crete expression of the factors underlying the tendency of the rate
of profit to fall. An excess capacity of production appears in two
forms: in a capacity used to produce goods which saturate markets
and depress prices and profits, and in an unused capacity, an idle
equipment which is unused because demand is insufficient. The two
forms interpenetrate, flow one into the other, are combined in the
same enterprise: both tend to lower the rate of profit.

The more intensively, completely, continuously the means of produc-
tion are used by labor, the greater is the yield of surplus value and
profit, assuming that the necessary market conditions exist;* the
yield decreases in proportion to diminishing utilization of the means
of production. Labor can produce surplus value only if it sets in
motion fixed capital and raw materials, and these can be made to
yield profit only if set in motion by labor. If an enterprise operates
below its capacity, no surplus value is produced by the labor which
might be employed and no profit yielded by the capital incorporated

* "The development of industry fixes a constantly increasing portion of the capital in
a form in which, on the one hand, its value is capable of continual self-expansion, and
in which, on the other hand, it loses both use-value and exchange-value whenever it
loses contact with living labor. . . . The same instruments of labor, and thus the same
fixed capital, may be more effectively used by a prolongation of their daily use and by
the greater intensity of employment ... a more rapid turnover of the fixed capital.
. . . The entire capital cannot be employed all at once in production, a portion of the
capital is always lying fallow . . . hence the capital active in the production and
appropriation of surplus value is curtailed to that extent. The shorter the period of
turnover, the smaller is the fallow portion of capital as compared with the whole, and
the larger will be the appropriated surplus value. . . . The mass of the produced surplus
value is augmented by the reduction of the period of turnover. Any such reduction
increases the rate of profit, since this rate expresses the mass of surplus value produced
in proportion to the total capital employed." Marx, Capital, v. I, p. 431; v. II, p. 409;
v. Ill, p. 85. If a more intensive use of fixed capital increases surplus value and the rate
of profit, a lessened intensity of use, an unused capacity, necessarily decreases surplus
value and the rate of profit.

The Fall in the Rate of Profit » 121

in the unused capacity, whose costs eat into the produced and realized
surplus value and profits and reduce the rate of profit on the total
invested capital.*

Thus a downward pressure is exerted on the rate of profit by unused
capacity, a destructive yet inescapable aspect of capitalist production
and expansion. The unused capacity may be relative or absolute, but
it becomes continuously larger as variable capital decreases in favor
of constant capital, particularly the fixed portion. Another contra-
diction arises: labor costs are variable, they can be lowered as output
falls; the costs of capital equipment are fixed, they must be met
regardless of output. The problem is aggravated by some variable
costs becoming semi-fixed. Fixed and semi-fixed costs (interest, de-
preciation, insurance, taxes, management, merchandising costs, some
costs of labor and raw material) do not vary or vary only partly
with variations in output.f The costs are no problem, are compatible
with a rising rate of profit, if production is continuous and up to
or near capacity; they become a burden on reaHzed profits as pro-
duction falls below capacity. For the fixed and semi-fixed costs must
be met, whether they are earned or not; but as no surplus value is
produced by the unused capacity, the mass and rate of profit are
lowered.

The greater the scale of production, and the higher the composition
of capital and the productivity of labor, the greater is the pressure
of unused capacity on the rate of profit. Operating below capacity
in small-scale industry, with its lower composition of capital, is not
necessarily fatal because variable labor costs are greater than fixed
or semi-fixed costs: as output falls the workers who are fired are
not a cost of variable capital and involve no direct loss, while losses
on the costs o£ unused capacity are not great. Operating below capacity
in large-scale industry, with its higher composition of capital, is fatal
because fixed and semi-fixed costs are greater than the variable costs
of labor: as output falls the workers who are fired still involve no
direct loss on variable capital, but this is now relatively unimportant
in comparison with the great losses on the costs of unused capacity.

* "The larger the fixed capital and the slower its circulation, the larger will be the
share of capital lying immobile, and the smaller will be the capitalist's rate of profit."
I. Lapidus and K. Ostrovityanov, An Outline of Political Economy (1930), p. 142.

t "Taxes, fire insurance, wages of various permanent employees, depreciation of ma-
chinery and various other expenses of a factory run on just the same, whether the
working time is long or short. To the extent that production decreases, these expenses
rise as compared to the profit." Marx, Capital, v. Ill, p. 94.

122 The Decline of American Capitalism

In small-scale industry, where low fixed and semi-fixed costs absorb
a small part of the output, 25% operation might mean breaking even
and 50% operation mean substantial profits. In large-scale industry,
where high fixed and semi-fixed costs absorb a large part of the
output, 25% operation might mean disastrous losses, with operation
of 50% or more necessary to break even. But after the point at which
fixed and semi-fixed costs are earned, the rate of profit in large-scale
industry tends to rise sharply because of its higher scale of operations
and the productivity of its labor.

Because of the conditions identified with unused capacity, the larger
mass of profits "earned" in large-scale industry may coincide with
a fall in the rate of profit. This perpetually tempts an enterprise to
use all of its capacity. But operating 100% of capacity does not neces-
sarily avert a fall in the rate of profit. For where markets are limited,
the use of excess capacity may mean an output of commodities which
the markets cannot absorb. Competition is sharpened. Prices may drop
to unprofitable levels. Or if they do not, prices may become indi-
rectly unprofitable through an increase in advertising and other mer-
chandising costs. In either case the rate of profit falls. As the upward
movement of prosperity reaches its climax it creates more intensive
efforts to raise the productivity of labor, which augments excess ca-
pacity, and more use of excess capacity to capture markets, in order
to overcome the tendency of the rate of profit to fall. But markets
are limited, they shrink relatively, as capitalism develops the forces
of production more than the forces of consumption. Efforts to raise
the rate of profit may succeed, but only temporarily, because the
rise augments excess capacity and competition, and hastens overpro-
duction, cyclical breakdown, and a disastrous fall in the rate of profit.
Thus the rate of profit falls because of an excess capacity used under
market conditions which do not permit complete realization of surplus
value and profit.

That the rate of profit tends to fall is an observable and acknowl-
edged fact.* An indirect proof is the constantly larger capital invest-
ment necessary to produce a unit of product. In American manu-

* Why, then, do small concerns fail more easily in depressions, when unused capacity
mounts? Because the larger concerns have more control over markets and prices, possess
larger financial resources, including surplus, and are favored by the banks. They use,
moreover, the opportunity of depression to drive their smaller competitors out of busi-
ness. And in many cases the small concern, if it is small enough and if most of its
capital is variable, is only an apparent casualty: it closes down or retires completely, but
resumes business when prosperity returns.

The Fall in the Rate of Profit 123

factures, fixed capital rose 1,758% from 1849 to 1889, output only
1,170%/ The ratio of output to fixed capital was 2 to i in 1889 and
1.4 in 1929; on a different statistical basis the ratio was 1.8 in 1923
and 1.6 in 1929, a fall o£ 11% in six years. The direct proof is the
rate of profit itself (Table II). In 1924-29, the mass of profits rose,
with two interruptions during minor cyclical depressions, but the

TABLE II

The Rate of Profit, Manufactures, 192^-31

INDEX,
RATE ON INDEX, RATE OF

NET

FIXED

FIXED

TOTAL

RATE OF

RATE OF

SURPLUS

YEAR

PROFITS*

CAPITALf

CAPITAL

CAPITALt

PROFIT

PROFIT

VALUE

(millions)

(millions)

(millions)

1923

$3,174

$21,910

14.5

$34,491

9.2

lOO.O

lOO.O

1924

2,418

22,410

10.7

36,491

6.1

66.3

—

1925

3>245

25.457

12.7

42,366

7.7

83.7

III.3

1926

3'2I3

26,618

I2.I

45,273

7-1

77.2

—

1927

2,662

26,007

10.2

48,049

5.5

59.8

II2.5

1928

3.461

27,025

12.8

50,017

6.9

75.0

—

1929

3.951

28,235

13-9

52,694

7.5

81.5

I27.I

1930

878

28,987

30

52,121

1.7

18.5

—

I93I

Deficit^

27,000

Minus

48,500

Minus

Minus

II6.I

* Net profits — profits (exclusive of intercorporate dividends and taxes) of corporations
reporting net income less the deficits of corporations reporting no net income. The
profits of corporations which reported net income were $3,872 million in 1923 and
$4,760 million in 1929.

t Fixed capital — real estate, buildings, and equipment; total capital — common and
preferred stock and surplus. Capital for 1923 and 1931 is estimated.

J In 1 93 1 one group of corporations reported net income of $1,169 million, the other
deficit of $1,984 million, making for corporations as a whole a deficit of $815 million.

The rate of profit is somewhat distorted by dependence of the statistics on corporate
methods of accounting, which tend to underestimate profits and "mark up" capital
values, and by the inclusion in surplus of outside stock ownership, whose income is not
included in profits. The distortions, however, do not affect the movement in the rate of
profit.

Source: net profits and capital — Bureau of Internal Revenue, Statistics of Income for
the respective years; index of rate of surplus value — see Table IV, chapter V.

rate of profit fell. In every year the rate on both fixed and total
capital was below 1923; and on total capital the rate of profit was
below 1925 in every subsequent year. The mass of profits rose in
1928-29 (a rise interlocked with the approaching cyclical break-
down), but even in these peak years the rate on fixed capital was
below 1923, and the rate of profit (total capital) was below both

124 The Decline of American Capitalism

1923 and 1925. Clearly capitalist production is a perpetual struggle
against a falling rate of profit. The rate falls and rises and falls in
prosperity. It falls precipitously in minor depression: a fall of 33.7%
in 1924 over 1923 and of 22.5% in 1927 over 1926. And it falls dis-
astrously in major depression: a fall of 77.3% in 1930 over 1929 and
of 81.5% over 1923; a fall below zero in 1931. (In the first quarter
of 1933, 205 large corporations with a "net worth" of $7,443 million
had a deficit of $14,831,000; in the second quarter, marked by a
speculative revival of industry, they had net profits of $86,878,000,^
or a rate of profit of 1.1%.)^ Exclude depressions, minor and major,
and the tendency is still definitely downward. Average yearly profits
rose from $3,209 million in 1923 and 1925 to $3,542 million in 1926,
1928 and 1929, but the rate on fixed capital fell from 13.5 to 12.9
and the rate of profit (total capital) from 8.3 to 7.2 — a fall of 4.4%
and 13.2% respectively. While the rate of profit was jailing, the rate
of surplus value rose uninterruptedly and was 2^.1% higher in ig2g
than in 192]. The rate of profit in ig^i fell below zero, but the rate
of surplus value fell only 8.6% and was still /6./% higher than in
192^. Capital investment increased more than the realization of sur-
plus value and profit, hence the fall in the rate of profit, which forced
the investment of more capital (including profits retained as surplus)
in an effort to overcome the fall.*

As the law of the falling rate of profit is not absolute, but a tendency,
it may be checked temporarily: the rate may even rise. It is signifi-
cant, accordingly, that the rate of profit fell in 1924-29.! It fell in

•The ratio of net income to capital investment fell from a yearly average of 16.2 in
1909-13 to 1 1.3 in 1923-29. It v^^as 14. i in 1919, 5.8 in the depression year 1921, 10.8
in 1922, 1 1.9 in 1923, and 11.2 in 1929. The ratio of net income to gross sales was
15.2 in 1909, 1 1.5 in 1919, and 10.5 in 1929. Robert R. Doane, The Measurement of
American Wealth (1933), p. 149. The methods of calculation are different from those
in Table II, but the same thing is proven — the tendency of the rate of profit to fall.

t The fall in the general rate of profit is not merely a result of the deficits of corpo-
rations making no profits, or of the small earnings or losses of smaller enterprises. These
arc important factors, and they are intertwined with all the contradictory forces set in
motion by changes in the composition of capital. Moreover, capitalist production must be
considered as a whole. The fall in the rate affects enterprises with enviable records of
earnings. Thus the rate of profit on the invested capital of the United States Steel Cor-
poration fell from approximately 8% in 1902 to 4.5% in 1927-29 (the rate rose sharply
during the war years of 1916-17). R. Weidenhammer, "Causes and Repercussions of
Faulty Investment of Corporate Savings," American Economic Revietv, March, 1933, pp.
39-40. United States Steel has paid constantly larger dividends, but this has required a
still larger reinvestment of earnings. The corporation's surplus rose from $25,000,000
in 1902 to $700,000,000 in 1929, while its assets increased more than threefold.

150

»• •

.•'■

•••..

••

140

CAPITAL L
INVESTMENT |

I

..••

■J .'

1 30

•

••

SURPLUS L
VALUl? M

IXO

1
•

•

_^

Us^

\

J

V

•
•

•

y

o*

\

MO

ri VALUE OUTPUT h 1

lOO

^

y^

,--

,.--

^"

\

\

^^--

V

\

90

jjwA2^

<

x"

'«,

\

\
\

80

_ RATE OF _,
1 PROFIT 1

X

X

J
X
X
K
X

^^

/

It

X
X
X

\-

70

.^

Ao

1

A

A

X
X

7.

X
X

\

50

i

X

X

-I X

-qo

J RATE OP PROFIT
1 US ST66U CORP.

1-

—lO
8

A ■

_ V

A

X

30

\

1*.

A

\

X

;^o

V

i%

. ./ \

J

X
X

V

' V

^^

/ ^

'V /^

uW

)

<

X

•*

V

lO

1 _

/9

Oi /yo/" /y/O /f/J" /fZO IfiS /J30

1 1 1 1 1

X
X

3

1923 ISZ4 19Z5 R;L& 197.7 1928 1929 1930 1931

VI. THE FALL IN THE RATE OF PROFIT.

126 The Decline of American Capitalism

spite of the unusual upsurge of prosperity; of the great expansion in
old and new industries, which yielded exceptional profits; of the
sharp rise in the productivity of labor and in the rate of surplus
value; of the fall in the prices of capital goods and raw materials,
and its tendency to increase profits; of relatively constant prices and
decreasing costs; of the export of capital, which "immobilized" billions
of surplus capital and eased the downward pressure on the rate of
profit.

Underlying the general rate of profit are the rates in separate in-
dustries and enterprises. While the fall in the general rate of profit
may be checked or it may even rise, some of the underlying rates
always fall. In separate industries and enterprises the rate of profit
may rise, fall, stand still, or disappear. In 1923-27, among 381 indus-
trial corporations and 129 public utilities, the average yearly increase
in profits ranged from 0.4% in iron and steel to 22.5% in automobiles,
and decreases ranged from 1% in automobile accessories to 10.5%
in clothing and textiles and 48.6% in coal mining; in nine groups
the average yearly increase in profits exceeded 10%, in four groups
it was below 10%, and in six groups the decrease in profits produced
deficits.^ This uneven working of the falling tendency of the rate
of profit is one of its most important manifestations. For it creates
and aggravates disproportions and disturbances even if the general
rate is rising. A higher rate in one group of enterprises may be the
result of losses in another group. Competition is intensified. Capitalists
redouble their efforts to plunder one another. Exploitation of the
workers becomes greater. Capital flows into industries with a higher
rate of profit, where it increases excess capacity. Speculation is encour-
aged. The instability of capitalist production and prosperity becomes
more acute. As some of the underlying rates of profit are always
falling, the tendency of the rate of profit to fall always exerts its
pressure; and always, consequently, there are efforts to overcome
the tendency, particularly as a small fall in the general rate may
coincide with a large fall in some of the underlying rates. If a fall in
the rate of profit is accompanied by a rise in the mass of profits,
it neither lessens the lag of wages behind profits nor overcomes
the contradictions of accumulation: the fall is itself one of the con-
tradictions. (The fall in the rate of profit is independent of the ficti-
tious fall often produced by the over capitalization of monopolist
combinations, by "marking up" capital values to hide profits, beat
down wages, or cheat investors, and thus swell the incomes of preda-
tory financial capitalists. Where a fall in the rate of profit is pro-

The Fall in the Rate of Profit 127

duced by overcapitalization, the results are not, however, fictitious,
for it forces management to strive for higher profits, and thereby
intensifies competition and the drive toward overproduction.)

The higher composition of capital and the tendency of the rate
of profit to fall involve the general problem of "overhead costs" —
those "costs of production" which, whether necessary or unnecessary,
do not fall correspondingly with a fall in output. As industry becomes
increasingly large-scale, all sorts of unforeseen costs arise and eat
into profits; many of the costs puzzle the capitalist and are described
as "hidden." (Among the "hidden costs" recently discovered are
older employees over forty who are ruthlessly thrown upon the scrap-
heap.) There are limits to an increasing scale of profitable opera-
tion, technical limits in productive efficiency and economic limits
in markets; although the limits are flexible they often result in effi-
ciency losses and in a lower rate of profit among the larger and most
heavily capitalized enterprises. Displacement of labor, particularly by
automatic machinery and apparatus, produces an increase in the tech-
nical, managerial, and supervisory staffs, whose functions are being
increasingly mechanized; their costs are not as variable as the costs
of labor. The costs of merchandising and advertising increase enor-
mously under pressure of excess capacity, relatively limited markets,
and aggravated competition. The necessity of efficient and continuous
production, because of the burden of fixed and semi-fixed costs, re-
sults in growing expenditures on management engineering and per-
sonnel and "welfare" work, including espionage, to insure efficiency,
crush unionism, and prevent strikes — particularly to prevent strikes
which might interfere with continuous operation. Costs formerly
almost wholly variable now develop many aspects of fixed costs, an
antagonistic result of the efforts to lower the variable costs of labor.
An increasingly larger minimum labor force is required where a
plant operates below capacity or shuts down. Losses accumulate on
stocks of raw materials when output or prices fall. The rapidity of
technical change quickens the rate of obsolescence of mechanical
equipment, resulting in large losses and the necessity of larger depre-
ciation allowances. (Scrapping "obsolescent" equipment is often sheer
waste, justified competitively, not socially.) Debts and interest charges
pile up, as a result of the pressure for more capital to enlarge produc-
tion and check the tendency of the rate of profit to fall, introducing
rigid and unwieldy elements in the financial structure, which intensify
the instability of prosperity and prolong depression. All of these over-

128 The Decline of American Capitalism

head costs are involved, in one aspect or another, with excess capacity,*
the result of changes in the composition of capital and the increasing
productivity of labor— the devils who spoil the best of all possible
worlds by exerting downward pressure on the rate of profit.

These problems arise out of contradictions in large-scale production.
The economy of large-scale production involves increasing the pro-
ductivity of labor, and reducing the amount of paid labor (wages)
incorporated in a commodity. Thus, while the prices of commodities
fall, more surplus value and profit may be realized on the production
and sale of a larger mass of cheapened commodities. An enterprise
using more productive methods, which are its exclusive possession,
can sell below the market price but above its prices, or costs, of
production, and thus "earn" a higher rate of profit. But the more
productive methods cease being an exclusive possession, or still more
productive methods are introduced. Competition beats down prices;
excess capacity develops or becomes greater. The rate of profit begins
to fall.

Essentially the contradiction is this: The economy of large-scale
production depends upon measurably full operation and profitable
sale of the output. But capitalist industry is incapable of continuous
and planned utilization of all the available means of production, be-
cause it is incapable of commensurately developing the conditions
of consumption. Industry is tormented by unused capacity and forced
to operate below capacity. In large-scale industry the margin of profit
rises greatly beyond a certain point, but profits fall greatly when output
falls below that point. Where formerly small changes in output meant
small changes in profits, small changes in output now mean large
changes in profits, and large changes in output mean disastrous losses
which must be met out of reserves and working capital, because
of the high proportion of fixed and semi-fixed costs which do not
fall or fall only slightly as output falls, and if the capacity of an
enterprise is fully utilized, it may result in so saturating markets
that prices fall and cancel (in terms of profit) the economy of large-
scale production.

Aside from depression, there is always an excess capacity in industry
which tends to offset gains from the increasing productivity of labor
and the economy of large-scale production. In the peak years 1928-29,
American industry was capable of producing at least 20% more goods,
many industries from 25% to 75% more. This excess capacity, vary-

• "Overhead cost is practically coextensive with unused capacity." J. M. Clark, Studies
in the Economics of Overhead Costs (1923), p. 483.

The Fall in the Rate of Profit 129

ing in space and time but always tending to increase, is a result of
the fundamental contradiction: capitalist production tends toward an
absolute exploitation of labor, an absolute production of surplus value
and profit, but their realization is limited by limitation o£ consumption
among the mass of the people. Wages lag behind profits, investment
income increases more than consumption income, production and
consumption are not balanced, all because of the institutional greed
for accumulation. In one of its aspects, excess capacity, which is a
portion of capitalized surplus value, represents possible consumption
of which the workers have been deprived.

Excess capacity and its downward pressure on the rate of profit
increasingly torment large-scale industry. Why, then, large-scale in-
dustry? Being itself capitalist production, small-scale industry also
was afflicted by excess capacity and the falling tendency of the rate
of profit, although not in the severer forms of to-day. The struggle
against the fall led to a higher composition of capital. Often, not
always, small-scale industry, particularly in the luxury trades, may
still yield a higher rate of profit. But its field is limited, as manu-
facture of the characteristic products of modern industry requires
large amounts of machinery and apparatus, of fixed capital, and,
consequently, of raw materials. Competition, moreover, forces a lower-
ing of costs, which is accomplished by raising the productivity of
labor and enlarging the scale of production. By increasing its constant
capital, a small-scale enterprise secures at the start competitive advan-
tages and "earns" a rising rate of profit. This dooms small-scale
industry, which is destroyed by the "free" competition it depends
upon. Other enterprises enlarge the scale of their operations and
change the composition of their capitals, and eventually competition,
restricted markets, and excess capacity reverse the rise in the rate
of profit. The tendency of the rate of profit to fall is thus strengthened,
and is never, save under certain rare conditions and then only tem-
porarily, overcome.

CHAPTER IX

Multiplying Contradictions and
Capitalist Decline

pposiNG forces are always at work to check the tendency of the
rate of profit to fall: capitalist production is an unceasing struggle
against the tendency. The struggle and the forces it sets in motion
are determining factors in capitalist expansion, cyclical breakdown,
and decline.

Capitalist production strives to check the fall in the rate of profit
by raising the productivity of labor. This may take the form of
greater intensity of labor, and develops some of the most barbarous
aspects of capitalist exploitation. It includes speeding-up the workers
by making them attend more machines ("stretch-out" system), in-
creasing the speed of machines, or "standardizing" work motions
on a basis which strains human resources, an important element of
"scientific management." A greater intensity of labor tends to raise
the rate of profit by increasing surplus value without an increase
in the value of fixed capital. This may be achieved also by depressing
wages below the value of labor power — so that workers are able to
buy less of the customary necessaries of life — either through direct
reduction of wages or rising prices. But all these efforts mean a decrease
in relative wages, a greater lag of wages behind profits, and tends
to upset the balance between production and consumption. Similar
results follow a rise in the productivity of labor through the use of
more efficient equipment. For this leads to an increase of constant
capital, particularly the fixed portion, more excess capacity, and a
stronger tendency of the rate of profit to fall. The efforts to overcome
contradictions aggravate them and the forces of cyclical breakdown.

Increasing the productivity of labor is an aspect of rationalization,
whose primary aim is to check the fall in the rate of profit. Rational-
ization means the more economical, intensive, and scientific utilization
of constant capital. It involves more efficient use of existing equip-
ment; development of new processes, particularly chemical, which
may increase productivity with little if any new expenditure on fixed
capital; introduction of more efficient equipment at the old or lower

130

Multiplying Contradictions and Decline 131

prices, accomplished on a large scale by the electrification of industry;
and the more economical use of raw materials, including the utiliza-
tion of their wastes in the form of by-products. But the result is an
eventual aggravation of contradictions. The output of by-products
increases the pressure on the markets of commodities with which they
compete. Pressure on all markets is increased by the general rise in
the productivity of labor, tending toward overproduction and unprofit-
able prices. In the long run all these efforts to enlarge the mass of
profits and check the fall in the rate increase the proportion of constant
to variable capital, and the rate of profit begins to fall again. More-
over, the more intense and economical use of constant capital depends
upon measurably complete and continuous operation, and this is
thwarted by an excess capacity become all the greater because of ra-
tionalization.

Destruction of capital and depreciation of capital values constitute
another check upon the fall in the rate of profit. Bankruptcy, by de-
stroying capital and moderating competition, eliminates a factor drag-
ging down the rate of profit and tends to raise the rate on the surviv-
ing capitals; reorganization of an enterprise, by scaling down capital
values (and the claims of investors), raises the rate of profit. The
process of destruction and depreciation of capital proceeds most dras-
tically in depressions, developing the conditions of revival and of a
higher rate of profit. This check upon the falling rate of profit means
serious losses to individual capitals, which the capitalists strive to un-
load upon each other and primarily upon small investors. But the
losses are a condition of the accumulation of capital and its concen-
tration, and of the prevention of a disastrous fall in the rate of profit.
Social waste on a large scale is involved. Waste is one of the necessary
conditions of capitalist production, prosperity, and accumulation —
waste that, antagonistically, is accompanied by its scientific elim-
ination in production itself.

Among the most important means of checking the tendency of the
rate of profit to fall is cheapening the value of constant capital, of
equipment and raw materials, whose quantity and productivity tend
to increase more than their price.

The industries producing machinery and apparatus continuously
increase the efficiency and decrease the price of their goods, usually
more than the average in capitalist production as a whole. This was
particularly marked in 1922—29 because of the very rapid progress in
technology: the price of equipment moved downward while its effi-
ciency rose substantially. But while cheapening the elements of fixed

132 The Decline of American Capitalism

capital may check the fall in the rate of profit of industries producing
consumption goods, it may result in a lower rate of profit in the in-
dustries producing capital goods. Moreover, this check of the fall
in the rate of profit involves, in terms of values, a relatively lower out-
put of capital goods, the major sustaining force in prosperity, and
eventually aggravates the problems of excess capacity and overpro-
duction.

Lower prices of raw materials contributed greatly to the profits of
industrial capital in 1923-29. But this means of checking the fa 1 in
the rate of profit develops some of the most serious contradictions and
antagonisms of capitalist production. Prices of raw materials are
cheapened by more efficient production and an increase in supply, in-
cluding the use of "scrap" and development of synthetic substitutes.
There may ensue a fall in the rate of profit of raw material industries.
Synthetic substitutes intensify competitive pressure on markets. The
pressure is twofold where a substitute is both raw material and fin-
ished product: rayon seriously affected the prices and profits of the
older textiles, raw and finished. Overproduction and disastrous price
decHnes are stimulated, even among raw materials whose output and
prices are under control of agreements or monopolist combinations,
strengthening the tendency of the rate of profit to fall and the forces
of cyclical breakdown.

Cheapening the prices of raw materials is, moreover, identified wth
the exploitation, by highly developed capitalist nations, of colonial
and other agrarian peoples, who are forced to maintain an unbalanced
economy and are ruined by disastrous price declines. This is in general
an expression of the capitalist exploitation and the economic decline
of agriculture; for it is economically and politically dependent upon
capitalist production and supplies nearly half of industry's raw
materials. Capitalist production extorts ruinous profits from agricul-
ture in several ways: opening up new agricultural regions, as in
the United States in 1865-90 or in the Argentine, yields profits on the
construction of railroads and on the subsequent traffic; increasing the
efficiency of agriculture yields profits on the sales of machinery and
implements; and there are direct profits on cheaper raw materials
and indirect profits on the cheaper foodstuffs which increase real
wages. Increasing the supply and decreasing the price of agricultural
raw materials is profitable to capitalist industry but tends to ruin the
farmers. As long as American agriculture was expanding, in area and
sales, and farmers might capitalize prospective earnings, capitalist ex-
ploitation was partly offset by increasingly larger markets and higher

Multiplying Contradictions and Decline 133

land values. Now, however, agriculture is doomed to permanent crisis
and decay by the impossibility o£ new expansion, declining markets,
depressed land values, continued capitalist exploitation, and the ac-
cumulated burdens of previous exploitation. (Agriculture is afflicted
also by the large fixed costs o£ investment in land and equipment,
among whose burdens are a fall in the rate of profit and a rise in
mortgage interest and tenancy. Agricultural equipment is costly and
not used most economically on small farms; while it may at first in-
crease the rate of profit, more efficient equipment tends to lower prices
and profits when it comes into general use; because of fixed costs and
competition there is a drive to produce and sell regardless of price,
some income being better than none. Farmers, particularly in the
epoch of capitalist decline, are inexorably transformed into peasants.)
The exploitation of agriculture simultaneously weakens capitalism,
however, by arousing class and political antagonisms, national and
international, and by creating the objective basis for the socialization
of agriculture and its union with socialist industry.

The most important means of checking a fall in the rate of profit
is to increase the mass of profits faster than the rate tends to fall. This
may be done by trickery, the seizure of extra profits wherever possible
and the plunder of capitalist by capitalist;* but essentially an increase
in the mass of profits involves more fixed capital (and materials),
larger output, and a larger share of the market : an enlargement of the
scale of production. In enlarging capacity, however, an enterprise is
seldom free to adjust the technical and the economic factors. The ex-
pansion program and the conditions of the market may require an
increase of 25% in capacity, but technical requirements may impose
an increase of 50% or 100%. The new equipment may be justified
from the technical standpoint of efficiency and unjustified from the
economic standpoint of realizing on all the output, of sales and profits.
On the other hand, an increase in consumer demand usually results in
new capacity much greater than the new demand. Thus, enlarging the
scale of production tends to increase excess capacity; this, as the

• "The rate of profit within the process of production itself does not depend merely
on the surplus value, but also on many other circumstances: on the purchase prices of
the means of production, on methods more productive than the average, on economies in
constant capital, etc. And aside from the price of production, it depends on special con-
stellations of the market, and in every business transaction on the greater or lesser smart-
ness and thrift of the individual capitalists, whether, and to what extent, a man will
buy or sell above or below the price of production and thus appropriate in the process
of circulation a greater or smaller portion of the total surplus value," Marx, Capital,
V. Ill, p. 439.

134 The Decline of American Capitalism

variable costs of labor decrease in favor of the fixed and semi-fixed
costs of constant capital, may result simultaneously in a rise in the mass
of profits and only a temporary, if any, check in the falling rate of
profit. Moreover, the tendency toward an absolute increase in the scale
of production, regardless of market conditions and the proportional
relations of one industry to another, conditions the whole movement
of recurrent cyclical crisis and breakdown.

Monopoly arises out of changes in the composition of capital and
their results. Monopolist combinations are only partly a result
of the technical aspects of the enlarged scale of production, they are
also a result of the desire to seize any available profits and control out-
put, markets, and prices to increase profits. Vertical combinations
spread upward and downward to secure profits in the production of
raw materials (and assure a steady supply) and profits in various
stages of manufacture up to the final product. Horizontal combina-
tions spread outward to control the output and markets of a particular
product, and secure more profits by manufacture of allied products
and general diversification of output. Some combinations may do both.
These efforts to increase the mass of profits include combinations
striving to secure a higher rate of profit in one activity to offset a fall-
ing rate in another activity. The process, which leads to monopoly,
results in intensified competition because of larger output, the increase
in the scale of production, and the persistent torments of fixed and
semi-fixed costs and excess capacity.

Under the conditions of large-scale production, competition is not
necessarily accompanied by a decrease in production or shutdown if
prices fall or by the migration of capital to a more profitable industry
if profits are low. That possibility was always more theory than real-
ity : it was severely restricted by fixed capital, habit, and lack of knowl-
edge of a new industry. It was, nevertheless, easier than to-day to de-
crease production or shut down or migrate to a new industry because
of the large proportion of easily transferable variable capital. This
becomes increasingly difficult in large-scale industry because of the
greater investment in fixed capital and the greater specialization of
machinery and output. To-day, large-scale enterprises, in manufac-
tures, mining, petroleum, keep on producing regardless of unfavorable
market conditions : to decrease production or shut down usually means
heavier losses than selling below the price of production, means a dis-
astrous depreciation of capital. Competition is intensified. Intensified
competition, unprofitable prices, and large losses no longer necessarily

Multiplying Contradictions and Decline 135

result in decreased production. This aggravates the contradictions driv-
ing toward overproduction and cyclical breakdown.

Efforts to create monopoly are invigorated. Monopolist combinations
succeed (an indication of capitalist decline) mainly by limiting output
and raising prices, by control of markets and prices more than by gains
in productive efficiency, and frequently in spite of real losses in effi-
ciency. These combinations seize some of the profits of trade by ex-
torting monopoly prices or by opening their own retail outlets, and they
seize some of the profits of "independent" small producers by extort-
ing higher prices for materials or by forcing them to accept low prices
for parts of a product which they manufacture. Thus, monopolist com-
binations may check a fall in their rate of profit by imposing lower
rates upon other groups of capitalists. But monopoly is rarely complete
or enduring. Monopolist combinations or controls break down. New
forms of monopolist competition arise. Monopolist combinations may
clash with each other over prices of raw materials or by invading each
other's markets. Independents, using the newest and most efficient
equipment and much more likely to operate at 100% of capacity, may
earn a higher rate of profit than the larger companies — as was the case
in the steel industry in 1923-29. If monopolist combinations succeed
in suppressing competition in their own fields, competition in other
fields is aggravated. This may result either from the greater pressure
of capital seeking investment or from monopolist combinations invad-
ing non-monopolist markets to secure a larger "slice" of the consumer's
dollar. The "organization" of capitalist production provokes new dis-
organization. And in spite of all its efforts, monopoly capitalism is
still tormented by the tendency of the rate of profit to fall.

The increasingly higher composition of capital, the absolute develop-
ment of production and the relative development of consumption, the
fall in the rate of profit, and the contradictions of accumulation in
general are inseparably bound up with the development of the world
market, the emergence of imperialism, and the international extension
of the inner antagonisms of capitalist production.

Enlarging the scale of production makes more imperative the de-
mand for foreign markets to supply raw materials and absorb finished
manufactures.* Foreign trade tends to increase surplus value and its

* American imports of raw materials rose from a yearly average of $91,000,000 in
1876-80 to $1,484 million in 1926-30, exports of finished manufactures from $98,000,-
000 to $2,126 million. Imports of raw materials rose three times as much as exports;
exports of finished manufactures rose four times as much as imports. Department of
Commerce, Statistical Abstract, 1931, pp. 494-95. Foreign trade also supplies raw
materials otherwise unavailable or nearing exhaustion.

136 The Decline of American Capitalism

realization and check the fall in the rate of profit by providing cheaper
raw materials and foodstuffs and by reducing excess capacity through
selling abroad goods which are unabsorbable in the domestic markets.

The efforts of monopolist combinations to increase the mass of prof-
its and the rate result in their operations becoming international,
particularly in economically undeveloped regions. They attempt to
monopolize sources of raw materials and markets for finished manu-
factures, both capital goods and consumption goods. Frequently mo-
nopolist combinations establish branch plants where cheap raw mate-
rials and cheaper labor yield higher profits.

The international operations of monopolist combinations require an
export of capital: nearly one-half of American capital in foreign coun-
tries consists of direct investments in branch plants, natural resources,
communications, and distribution. This direct export of capital is aug-
mented by the export of capital in the form of loans. In spite of the
great demand for capital in the highly industrial nations, strengthened
by changes in the composition of capital, there is always a surplus
capital seeking investment anywhere, anyhow. The export of this sur-
plus capital permits it to "earn" a higher rate of profit and eases the
downward pressure on the rate of profit of capital invested in domes-
tic industry.

In the epoch of monopoly capitalism foreign trade becomes en-
tangled with imperialism: the export of capital, the international oper-
ations of monopolist combinations, the struggle to control economically
backward regions capable of supplying raw materials and absorbing
surplus goods and capital. But imperialism, an endeavor to escape the
contradictions of accumulation and capitalist decline, creates new con-
tradictions. The export of capital tends to become an export of in-
terest paid on previously exported capital, which does not involve
the export of goods; the check in the fall of the rate of profit is
only temporary, as imperialism develops its own downward pressure
on the rate because of surplus capital, intensified competition, and the
development of large-scale industry on a world basis; the industriali-
zation of economically backward regions and the constantly greater
rivalry of imperialist nations weakens the economic base of imperial-
ism and strengthens capitalist decline. Imperialist antagonisms become
more violent, and explode into war and the threat of new wars, while
exploited colonial and semi-colonial peoples rise in revolt against im-
perialism.

If the rate of profit falls it sets in motion all the contradictory and

Multiplying Contradictions and Decline 137

antagonistic efforts to check the fall. If the fall is checked or if the
general rate rises there ensues an accelerated accumulation of capital
and creation of more surplus capital: the situation becomes worse.
Surplus capital desperately seeks profitable investment, forcing down
the rate of profit. It flows into industry, producing more excess ca-
pacity; invades the domains of monopoly with old, new, or substitute
products, producing more excess capacity; sharpens competition, in-
flames the passions of speculation, and strengthens the material and
ideological bases of imperialism. The result is an intensification of
economic disproportions, an increase in the instability of capitalist
production, and the aggravation of cyclical breakdown and depression.

Capitalist production is held tightly, inexorably, as in a vise, in the
contradictions of accumulation. What J. M. Clark, a liberal econ-
omist, says of overhead costs is true of all the contradictions of accum-
ulation, of which overhead costs are an aspect:

"They [overhead costs] make regular operation peculiarly desirable
and peculiarly profitable, so that business feels a definite loss whenever
output falls below normal capacity, and yet it is largely due to this
very fact of large fixed capital that business breeds calamities for it-
self, out of the laws of its own being. . . . There is something about
the commercial-industrial system which bewitches business so that it
does just the thing it is trying to avoid, and is held back from doing
just the thing it yearns to do — maintain steady operation. . . . We may
end our study with a curious wonder at the intricacies of the financial-
economic machinery which man has built. Man did not design them;
they are rather the unintended by-products of the inventions which
he did design to serve his supposed needs. These unintended by-
products he does not even understand. They appear with all the force
of living things with purposes foreign to those of mankind, because
they act in ways which man does not understand and did not plan.
No man has yet comprehended them completely. Yet we do know
enough to offer some prospect of controlling them, though we must
well-nigh remake ourselves and our industrial organization in the
process. And so we may look forward, not without hope, to the task
of taming the New Leviathan. The stakes are heavy, for if we do not
tame him, he may devour us." ^

The monster must "devour us." For in its efforts to ease the burden
of overhead costs and excess capacity, to avert a fall in the rate of profit,
capitalist production lowers wages, multiplies unemployment, engen-
ders crises and depressions, and throws the world into the bloody
struggles of imperialism. And the monster must "devour us" even

138 The Decline of American Capitalism

under the institutional arrangements of state capitalism urged by the
liberal economists. How does Clark propose to "tame" the monster?
By means of the "co-operation" of business "for certain purposes while
competing for other purposes"; of a price and wage policy intended
to "increase output" and "minimize" unemployment (which is con-
tradictory); of the "partnership" of capital, labor, and the consumers;
of national planning. These suggestions, made in 1924, are now part
of the "philosophy" of Niraism: and they are not working. Nor are
they working in the European nations where state capitalism is more
highly developed. While Clark, whose study is original, comprehen-
sive, and suggestive, measurably recognizes the determining relations
of production, he overemphasizes the relations of exchange. This over-
emphasis, which accepts capitalist production as eternal, necessarily
leads to proposals of superficial and unworkable reforms in the realm
of exchange. It is with exchange that state capitalism tinkers, for it
cannot tinker with the foundations of production. But the problem
is one of the underlying antagonisms of capitalist production: the ex-
ploitation of labor, the composition of capital, the drive to beat down
wages in favor of profits, the tendency to develop the forces of pro-
duction beyond the forces of consumption, and the resulting excess
capacity and "unearned" overhead costs. It is a problem of the con-
tradictions of accumulation. The disastrous results of the contradic-
tions and antagonisms appear in the realm of exchange, but they
originate in the realm of production. It is, moreover, a problem of the
social relations of capitalist production, of their fundamental exploit-
ing character. For, under socialism, the higher composition of capital
would mean more output or leisure or both; and there could be no
excess capacity because the aim of production becomes social consump-
tion and not private profit. There is no excess capacity in the Soviet
Union: no unemployment, no overproduction, no cyclical crises and
breakdowns. ...

The monster of capitalist accumulation cannot be tamed: it is the
law of his being to devour not only "us" but capitalism itself. For the
contradictions of accumulation are always undermining capitalism,
preparing its decline. But the undermining is relative in the epoch of
the upswing of capitalism: the contradictions are solved dialectically,
by the movement of crisis, depression, and recovery, while the long-
time factors of expansion permit of accumulation on an enlarged
scale. The mechanization of old and the development of new indus-
tries, the exploitation of the world's economically backward regions
(railways, public works and other construction, natural resources,

Multiplying Contradictions and Decline 139

new markets), particularly important in the United States because
of its own continental areas and resources — all these long-time factors
of expansion provided abundant demand for capital goods, the crea-
tion and absorption of new capital. There was an ebb and flow, crises
and breakdowns and destruction of capital, but the long-time factors
of expansion provided the conditions for enlarged accumulation, for
an accelerated production and realization of surplus value. When ex-
pansion is exhausted or approaching exhaustion, and the decline of
capitalism becomes the dominating fact of economics and politics, the
contradictions of accumulation begin to undermine capitalism in an
absolute sense because of the limitations imposed upon the production
of capital goods, upon the creation and absorption of new capital.

The prosperity of 1923-29 marked the practical exhaustion of the
inner long-time factors of expansion, which now depends upon the
dangerous expedients of imperialism and its exploitation of interna-
tional long-time factors of expansion. That upsurge of prosperity was
the "Golden Age" of American capitalism precisely because it can
never appear again: golden ages are always in the past. The unusually
great accumulation of capital in 1923-29 completed a cycle of expan-
sion and measurably exhausted the future possibilities of any consid-
erable growth in old and new industries. This development is em-
phasized by the tendency of the population to become stationary.
Under these conditions of decline, of exhaustion of the long-time fac-
tors of expansion, national and international, the contradictions of
accumulation are no longer overcome by the stimulating growth of
industry. Production of capital goods tends to become mere replace-
ment. Accumulation proceeds on a lower level, the extortion of sur-
plus value are limited. Capital becomes relatively more abundant
(although it may experience an absolute decrease) because of dimin-
ishing investment opportunities. The contradictions of accumulation
become more violent and explosive because the accumulation of capi-
tal, dependent upon the increasing production and absorption of capi-
tal goods, is limited, repressed. On a lower level, crises and break-
downs still act as a temporary solution of contradictions, but they are
no longer overcome by accumulation on an enlarged scale; depressions
become more grinding and recovery is limited because expansion no
longer stimulates an upsurge of prosperity. Capitalist decline is ac-
companied by the desperate resort to imperialism and state capitalism
— imperialism, to escape contradictions; state capitalism, to "lessen"
and "solve" by state action the multiplying contradictions of accumu-
lation.

140 The Decline of American Capitalism

State capitalism originates in the increasing contradiction between
the older relations o£ competitive capitalism and the newer relations
of monopoly capitalism, in the inability of monopoly capitalism to
function without some form of state intervention in industry — itself
an indication of approaching capitalist decline. When the decline be-
comes definite and threatening, state capitalism becomes definite and
inclusive. The institutional arrangements of Niraism must operate
within the limits of the exhaustion of the forces of expansion, i.e., of
the decline of capitalism, which is still, moreover, tormented by the
contradictions of accumulation on a lower level. Niraism cannot alter
the composition of capital, or destroy large-scale industry, or over-
come the tendency of the rate of profit to fall and the results of ef-
forts to check it,* or prevent wages lagging behind profits, or any of
the other fundamental contradictions and antagonisms of capitalist
production: these persist and more actively undermine the crumbUng
foundations of capitalism.

Where the "controls" of Niraism and state capitalism may modify
any one contradiction, they create and aggravate other contradictions.
State capitalism tends (primarily as a result of capitalist decline, not
of state "controls") to decrease the absolute mass of profits. While
this may be accompanied by alternating scarcity and abundance of
capital, the relative mass of profits and capital tends to increase, how-
ever, because of diminishing opportunities for profitable investment, in-
tensifying the downward pressure on the rate of profit. That means a
drive to raise profits by improving technological efficiency, displacing
labor, and lowering production costs, thus aggravating the problem
of excess capacity and the falling rate of profit by increasing constant
capital and restricting markets. As a way out, an engineer^ suggests
that the NRA impose "an indirect tax which would tend to drive idle
machinery out of existence and make further investment in unnecessary
plants and equipment unattractive to capital." As simple as all that!
Almost as simple as the belief of some management engineers that
the costs of excess capacity are a problem in the arrangement of ma-
chines and the more intensive exploitation of labor. As simple as the

* The downward pressure on the rate of profit becomes stronger under the conditions
of capitalist decline. "Until the world again enters upon a period of great industrial
expansion, requiring large expenditures of new capital, the rate of interest obtainable
from the highest type of security is likely to be low, very low — lower at all events than
any yet seen." Thomas F. Woodlock, "Money's Hire," Wall Street Journal, June 20,
1933. Woodlock speaks the jargon of the investment broker and confuses profit and
interest, but his point is clear.

Multiplying Contradictions and Decline 141

idea of progressives that income and inheritance taxes would break
up the concentration of wealth (which has greatly increased since the
taxes were imposed).

The proposal to tax unused capacity ignores the conditions which
produce "idle machinery" and "unnecessary plants" — the change in
the composition of capital, the tendency of the rate of profit to fall,
and the surplus capital pressing for investment. Would not the tax
intensify the fall in the rate of profit by adding the costs of the tax to
the costs of unused capacity? And would it not encourage full use of
capacity, sharpening the threat of overproduction and cycHcal break-
down ? Is there to be no more surplus capital ? What of wages neces-
sarily lagging behind profits, of investment income increasing more
than consumption income? Is surplus capital to be taxed out of ex-
istence? What of the efforts to increase the mass of profits to check
the fall in the rate, thereby enlarging the scale of production and ex-
cess capacity? And what of the unpreventable efforts to increase
profits by increasing the productivity of labor, which usually cannot
be done without creating more excess capacity? If Niraism "fixes"
wages and prices and "restricts" output, would that not tend toward
more excess capacity? This is admitted by a bourgeois economist: "A
premium will be put on efforts to lower the cost of production for the
sake of much higher profits. This will be done by investing more capi-
tal in order to increase the productivity of labor and may very well
result in new and revolutionary technical developments . . . and can
only lead to further overdevelopment of industries." ^ Is a tax on un-
used capacity to overcome the antagonisms between the output of capi-
tal goods and consumption goods, between one industry and another,
between production and consumption — antagonisms resulting from
the exploiting relations of capitalist industry?

The tax proposal, moreover, ignores the fact that excess or unused
capacity is not absolute, except in rare cases: it is relative. It is an ex-
cess only in relation to existing deficiencies in mass purchasing power
and markets, not in relation to social needs, for these are clearly abun-
dant and pressing. The tax proposal amounts to a restriction, instead
of liberation, of production, and is thus wholly in line with the tend-
ency to repress economic progress, which is characteristic of state
capitalism and Niraism and of the decline of capitalism. What is
necessary is not the capitalist abolition of excess capacity, used or un-
used, but its socialist utilization to fill social needs.

These problems constitute a whole chain of causes and effects, one
problem linked to another with links of steel. The problems involve

142 The Decline of American Capitalism

the fundamental, inescapable contradictions of accumulation, of capi-
talist production; these, in the epoch of the decline of capitalism
must doom Niraism and devour capitalism, particularly when the
contradictions explode in imperialist war. And final contradiction and
synthesis: in large-scale industry, capitalism has prepared the objec-
tive basis of socialism and has set in motion the dynamic forces of
class struggle by means of which the working class, organized by the
mechanism of capitalist production itself, mobilizes for the overthrow
of capitalism.

Summary

Jl HE accumulation of capital, the production of profits and their con-
version into capital, means both life and death to capitalism. For ac-
cumulation is beset with contradictions. It simultaneously promotes
production and sets in motion forces antagonistic to production and
accumulation.

Accumulation depends upon an increasing production and realiza-
tion of surplus value and its conversion into capital by means of an
increasing output and absorption of capital goods. The consequent
enlargement of the scale of production results in a higher composi-
tion of capital : the proportion of variable capital (wages) falls in favor
of constant capital (equipment and materials). A given quantity of
labor sets in motion a larger quantity of equipment and materials.
But this higher composition of capital limits the production and real-
ization of surplus value. It means a fall in wages and a rise in out-
put and profits. Mass purchasing power and consumption are restricted.
The forces of production are developed more highly than the forces
of consumption. An excess capacity arises, a capacity to produce beyond
the power to consume of existing markets. If the excess capacity is un-
used it produces no surplus value and profit, while its fixed and semi-
fixed costs eat into the realized surplus value and profit. If the excess
capacity is used, it throws a mass of goods upon the market which can-
not be sold at profitable prices. Competition is intensified. Profits are
lowered. The rate of profit falls. In its efforts to check the fall, capi-
talist enterprise raises the productivity of labor and enlarges the scale
of production, resulting in a still higher composition of capital, more
excess capacity and competition, more limitation of the production
and realization of surplus value, more downward pressure on the rate
of profit. Among the efforts to check the fall is the resort to monopoly
and to the export of capital and imperialism.

The fall in the rate of profit and the efforts to check it are funda-
mental factors in the instability of capitalist production and prosperity.
Both are interlocked with cyclical crises and depressions. These break-
downs temporarily solve the contradictions of accumulation by de-

143

144 The Decline of American Capitalism

stroying and depreciating capital, which permits of a rising rate of
profit on the surviving capitals.

In the epoch of the upswing of capitalism, the accumulation of capi-
tal is renewed, after a depression, on an enlarged scale. There is an
upward movement in production and prosperity because the long-
time factors of economic expansion make possible an increasing out-
put and absorption of capital goods. The rate of profit falls, but the
fall is compensated by an increase in the mass of profits.

In the epoch of the decline of capitalism, the accumulation of capital
is not renewed, after a depression, on an enlarged scale. There is no
upward movement of production and prosperity because exhaustion
of the long-time factors of economic expansion now measurably pre-
vent an increasing output and absorption of capital goods. The rate
of profit falls, but the fall is no longer compensated by an increase in
the mass of profits. The contradictions of accumulation are aggravated.
Greater disproportions and disturbances are created, and there is more
resort to monopoly and the export of capital and imperialism.

Excess capacity, a result of the higher composition of capital and the
forces it sets in motion, is merely a relative excess capacity. It is not
the peculiarity of a particular enterprise. Nor is it the result of mis-
judging demand or of defects in the realm of exchange. Excess capacity
is an inescapable result of accumulation under the social relations of
capitalist production. Excess capacity — while millions of wants arc
unsatisfied! Unused capacity — while milHons are unemployed! The
condition represents a restriction of consumption among the masses
of workers, farmers, and professionals. For accumulation grows by
increasing that part of the output of industry which is not consumed
but is transformed into capital goods. Consumption is thus restricted.
Yet consumption is necessary to production; new capital goods can
yield profit only if they produce and sell their output at profitable
prices. But production is developed more highly than consumption.
Hence excess capacity, the falling tendency of the rate of profit, and
the recurrence of cyclical crises and depressions. The contradictions of
accumulation are entangled with the antagonism between production
and consumption.

PART FOUR

The Antagonism Between Production
and Consumption

Introductory

JIt seems true to say : man produces to consume. But that is true only
o£ benighted savages and enlightened communists. Capitalist produc-
tion aims to make profits. Consumption is subordinate to production,
and consumption grows incidentally, as a mere by-product of the ac-
cumulation of capital. The worker works to consume, but capitalist
production permits him to work and consume only if profits are there-
by realized to enrich the owners of industry. Capitalist enrichment
results from accumulation, not from consumption, which is a neces-
sary evil. But the drive for the production of surplus value, for an
increasing and absolute production, expansion, and accumulation of
capital, necessarily restricts the consuming power of society {cf. the
decline of wages relatively to profits). Production and consumption,
instead of being complementary, are in fundamental antagonism.

Most of the early bourgeois economists practically ignored consump-
tion, considering it merely an aspect of exchange. With the enormous
increase in the productive forces of society and the multiplication of
goods, economists began to consider the problem of consumption. But
they did so in terms of distribution within the limits of existing eco-
nomic relations, completely ignoring 'the fact that the problem was
created by capitalist production itself. The problem was considered
solved by the pre-1929 "new capitalism." But, aggravated by multi-
plying contraditions, the antagonism between production and con-
sumption flared up in the most disastrous of cyclical depressions.

Now Niraism (and state capitalism in general) proposes to solve
the antagonism between production and consumption, which involves
the antagonism between profits and wages. President Franklin D.
Roosevelt says: "We can make possible by democratic self-discipline
in industry general increases in wages and shortening of hours suffi-
cient to enable industry to pay its own workers enough to let those
workers buy and use the things that their labor produces." . . . Gen-
eral Hugh Johnson, Administrator of the NRA: "Of course we arc
concerned with profits. The idea is to restore equilibrium, to establish
and maintain purchasing power. You cannot have business without
the investment of capital, and you cannot have that without profits.

147

148 The Decline of American Capitalism

During the intense drive for recovery the first emphasis should be put
on purchasing pow^er rather than profits because we think that is the
quickest w^ay to regain profits." ... A. J. Morris, banker: "The sum
total of all the revolutionary legislative and administrative policies
upon which we have embarked embodies the single objective — 'stimu-
lation and stabilization of purchasing power.' "... Prof. Rexford
Guy Tugwell, economist and rationalizer of Niraism: "Unless the
agricultural, the laboring and the office worker groups in America,
who comprise in all America the great body of consumers, are pro-
vided with buying power, our whole economic structure falls into
idleness and ruin. Only if it [Big Business] is definitely governed
[can it] assure a general well-being making possible a continuous
mass consumption." . . . E. A. Filene, businessman, who prophesies
(again!) the aboUtion of poverty: "It is not only possible to abolish
poverty, but to raise the masses into a state of well-being." ^

The pre-1929 prophets of prosperity (among them, damningly
enough, Tugwell and Filene) used the same words: production de-
pends upon consumption: as the workers are the largest consumers,
prosperity depends upon and is necessarily accompanied by increasing
consumption among the workers.* . . . An economic historian, in 1928:
"Gradually, consuming power was recognized to be not only the ba-
rometer of good times but also their determining element. Hence the
cultivation of consuming power became the direct concern of manu-
facturers." . . . The president of the National Industrial Conference
Board, in October, 1929, while the cyclical breakdown was develop-
ing and several weeks before the stock market crash: "A definite phi-
losophy has arisen — the trend of American business policy is toward
creation of widespread consumer purchasing power by providing high
wages. There is being established a 'benevolent circle' in place of the
vicious circle, extending from high wages to high consumer purchas-
ing power, to increased demand for manufactured goods and services,
and to still greater industrial production." . . . And a European econ-
omist, in 1929: "The disastrous business slump of 1920-21 made a
deep impression upon the minds of American businessmen. It was

* Among the ballyhoo-makers of prosperity who glorified Niraism was the adver-
tising promotion staff of True Story, using the old words and tune: "Within the past ten
years America has been making social and economic changes on the face of the earth.
. . . The purpose of [Niraism] is to provide this great mass market [the workers] with
still greater [I] buying power. If you have the mass production you must have mass
consumption. . . . This method of securing national recovery is already working; it
had begun to work long before the president's proclamation." Advertisement, New York
Times, September 12, 1933.

Introductory 149

realized as never before, that industrial prosperity depends not only
upon the ability to produce but also upon consumption keeping pace
with production."^

This great "principle" was no discovery. ... In 1889 David A.
Wells, an American economist, said: "We produce to consume, and
we consume to produce, and the one will not go on independently of
the other. An increase in the production of all useful and desirable
commodities and services follows every increase in the ability of the
masses to consume." . . . Twelve years earlier another American,
frightened by the great strikes of 1877, which he condemned as "in-
surrectionary" and "communist," urged, in "the best interests of so-
ciety, the interests of the capitalists themselves," raising the purchas-
ing power and consumption of the workers: "The number of laborers
who can buy must be large, or many of those who produce to sell will
have little or nothing to do. Buyers are as important, in order to have
prosperity, as sellers." . . . And Ira Steward, an early American labor
leader, who believed the workers would eventually "consume" the
capitalists out of private ownership: "Wealth cannot be consumed
sparingly by the masses and produced rapidly. If the worker obtains
less he spends less." ^

The "principle" was neither new nor American in its origin. Jacob
Vanderlint, an English merchant-economist, enunciated it in 1734,
when capitalism was in its revolutionary youth :

"The labouring People in general are but half the Consumers they
ought to be. . . . By making the Poor fare harder, or consume less
than their reasonable Wants in that Station require, they being the
bulk of Mankind, would affect the consumption of Things in general
so mightily, that there would be a want of Trade and Business amongst
the other part of the People. ... If the labourers become much greater
consumers this would certainly make abundance of Trade and Busi-
ness. . . . Increase the power of labourers to buy half as many more
necessaries for their support and comfort, and there would be almost
half as much more Trade and Business. . . . Raise the wages of the
labouring People and augment the profits of the trading part." *

The "principle," in spite of its apparent economic logic (applicable
only under non-capitalist conditions), contradicts the basis of capitalist
production. An increase in consumption is profitable regardless of who
the consumers are and only if it represents an increase in the output
of capital goods. That is the tribute of the profit economy. As long as
the output of capital goods rises consumption may increase, because
consumer purchasing power is created (wages, part of salaries and

150 The Decline of American Capitalism

profits), and is spent wholly on the output of the consumption goods
industries, not on the output of the industries producing capital
goods. These were the conditions in the epoch of the upswing of capi-
talism, when the mechanization of older industries, the development
of new industries, and the industrialization of new regions resulted in
an increasing output and absorption of capital goods. Even then, how-
ever, the antagonism between production and consumption flared up
in recurrent cyclical crises and breakdowns. The antagonism creates
a permanent crisis in the epoch of the decline of capitalism because
production and consumption are no longer stimulated by a constantly
greater output of capital goods.

CHAPTER X

Economic and Class Contradictions

JtiiVEN after the coming of depression the belief prevailed that the
pre-1929 prosperity was based upon consumption. It was thus expressed
by M. J. Bonn, a German bourgeois economist:

"American prosperity was based on the prosperity of the ultimate
consumer, and not, like the German boom, on the prosperity of
industries producing capital goods which furnished employment for
each other.^

But American prosperity, as much as the German, was not "based
on the prosperity of the ultimate consumer." A high level of consump-
tion may accompany prosperity, but it is never the primary cause.
If German prosperity (in the cyclical sense!) was accompanied by
a low level of consumption, it was not because prosperity was based
upon the output of capital goods but because the output was limited
by the conditions of economic decline, and consumption fell. If Ameri-
can prosperity was accompanied by a comparatively high level of
consumption, it was not because prosperity was based on "the ulti-
mate consumer" but because American industry, merely approaching
decline, was able to produce and absorb a constantly greater output
of capital goods. Under the conditions of the upswing of capitalism
the fall in consumption is relative; under the conditions of decline
the fall is absolute. Both in Germany and the United States, more-
over, the output of capital goods increased more than consumption
goods, hence the cyclical breakdown. . . .

That consumption was not the basic factor in American prosperity
was observed by a business journal early in 1929:

"There is certainly nothing in the statistics to indicate the existence
of that rapidly expanding consumptive capacity of the masses about
which so much is heard to-day." ^

Consumption in 1922-23 moved sharply upward, scoring an aver-
age yearly increase of 6.5%. One cause was cyclical recovery, another
the considerable rise in wages. But the rate of increase fell abruptly.
"In 1924 consumption was rather sharply below that of the year
preceding; and the same was true of 1925, despite an appreciable
recovery. In 1926 there was a short-lived spurt, the per capita volume

151

152 The Decline of American, Capitalism

for that year being rather more than ^% above 1923. The per capita
consumption for 1927 was about 2% below that of the year before,
though still perhaps 4% above the figure for 1923. . . . There has ceased
to be a noteworthy upward trend in the quantity of tangible goods
consumed per capita by the people of the United States." ^

Production in 1922-23 moved sharply upward, scoring more than
the usual cyclical gains, but the rate of increase was not maintained.*
In spite of the great expansion in new and old industries, the rate
of increase in production was downward. This seems to contradict
the fact that there was an average yearly increase in production of
3.8% compared with 3.1% in 1901-13.* But the comparison is mis-
leading. There was a major depression in the earlier period, none in
the later. If the major depression years of 1907-08 are eliminated, the
two periods become more comparable, particularly as each had two
minor depressions. On this basis production scored an average yearly
increase of 6.3% in 1901-13 and only 3.8% in 1922-29. Still more
significant, the average yearly increase in production was smaller
in igo^i^ than in igo2-o6 and smaller in ig22-2g than in igog-i^,
the rates of growth being 7.6%, 4.6% and 3.8%. The upward move-
ment in production began to flatten in 1909-13, continued to flatten
in 1923-29, and is still flattening. This is a serious threat to capitalist
production, for it depends upon an increasing rate of expansion and
of capital investment.

A relative or absolute decrease in consumption is not incompatible
with capitalist prosperity. But if the rate of increase in production
was smaller than pre-war, why the flourishing capitalist prosperity
of 1923-29? The answer is in the accumulation of capital and the
output of capital goods. In spite of a flattening in the upward move-
ment of production, there was an unusually large increase in the
output of capital goods and consequendy in dividend and interest
payments (Table I). Even in 1923, when consumption made a much
larger gain than in the following years, the rate of increase in the
output of capital goods was more than twice the rate in consumption
goods. The statistical picture of the disproportions in the major eco-
nomic factors clearly reveals the causes both of capitalist prosperity
and of cyclical b/eakdown. At the basis of the disproportions is the
tendency for the output of capital goods to rise more than consump-

* The output of manufactures rose from $39,050 million in 1923 to $40,400 million
in 1925 and $41,000 million in 1927— not a startling increase. Output rose to $47,100
million in 1929, a sharp and disproportionate rise definitely bound up with the cyclical
crisis. Department of Commerce, Statistical Abstract of the United States, 1931, p. 483.

Economic and Class Contradictions 153

TABLE

I

A

ntagonistic Factors

in Production and Consumption,

1923-29

CAPITAL CONSUMPTION

DIVIDENDS

TOTAL

YEAR

PRODUCTION

GOODS

GOODS

-INTEREST

WAGES

1923

lOO.O

lOO.O

lOO.O

lOO.O

lOO.O

1924

*

89.6

99.1

103.8

IOI.3

1925

103.5

105.6

IO8.I

II7.5

107.2

1926

*

II7.6

II2.6

132.6

II3.7

1927

IIO.I

II4.6

III.7

I44.I

114. 6

1928

*

II 6.0

II7.I

150.8

112.4

1929

120.6

136.0

II8.0

177.2

*

* Not available.

Source: Production — Census of Manufactures, 1929, v. I, p. 16; capital goods and
consumption goods — F. C. Mills, Economic Tendencies in the United States, p. 280;
dividends and interest, all corporations (exclusive of interests paid by banks) — ^Bureau of
Internal Revenue, Statistics of Income for the respective years; wages (all wage-workers)
— W. I. King, The National Income and Its Purchasing, p. 132. The index of dividends
only was 200 in 1929. Interest rose 31%, dividends 100%.

tion goods and the enormous lag o£ wages behind dividends and
interest.

While the rise in the output of capital goods always exceeds that
in consumption goods, this was particularly marked in 1923-29. Where
there was an average 5% rise in capital equipment in the years be-
fore the World War, the post-war average was 6.4%. "The index
shows an appreciably more rapid growth of those products of economic
activity which may be called procreative, than of end-products in
the form of consumption goods. The equipment for producing goods
for ultimate consumption was being augmented year by year at an
exceptionally rapid rate. An increasing proportion of our total annual
output of goods took the form of equipment designed to further
the processes of roundabout production." ^ Machinery, the most "pro-
creative" of capital goods, scored the largest gains. Consumption
scored much smaller gains, and these were dependent upon larger
gains in capital goods : when the output of capital goods slowed down,
prosperity crashed into depression and consumption fell seriously. The
growth in capital goods and in dividends and interest react upon
one another : an increasing output of capital goods permits the realiza-
tion of larger profits, which in turn permit an increasing investment
and output of capital goods. Disproportions were sharpened, resulting
in the minor depressions of 1924 and 1927, warning of the coming
catastrophe. The depressions were temporarily overcome by the

154 The Decline of American Capitalism

demand for capital equipment in the newer industries and for more
efficient equipment in the older industries to raise the productivity
of labor. At the same time exports of manufactured goods rose from
7% of the total in 1923 to 8% in 1929; these exports increased an
average of 9.3% yearly compared vv^ith an average of 7.6% in 1901-13.^
The increase w^as largely due to the American export of capital,
which financed foreign purchases. Thus for a time, and in spite
of minor interruptions, there was a constantly greater output and
absorption of capital goods, the basis of prosperity.

The relative increase in the output of capital goods was even greater
than appears in Table I, whose index of consumption goods over-
estimates the rise in consumption. It includes residential construction,
which is, particularly in the case of apartment houses, more in the
nature of capital goods, and which, since it experienced an unusually
great rise, inflates the index of consumption. Moreover, the index
represents the physical volume of consumption goods produced, and
gives no indication of the fact that sales were below output and
often below values. Thus in 1923-29, while the yearly average of
production (all goods) was 5.9% above "normal," consumption (retail
sales) was only 1.3% above "normal."^ This reveals more clearly
the tendency of capitalist enterprise toward an unconditional develop-
ment of production, creating the antagonism between the capacity
of industry to produce and the consuming power of a society based
on class divisions.

The great increase in dividends and interest — nearly four times the
increase in production and five times that in wages — arose logically.
It arose because of the enlargement of the scale of production and
the consequent change in the composition of capital. As constant
capital (particularly the fixed portion) rises more than variable capital,
more must go to capital than to labor, in spite and because of the
tendency of the rate of profit to fall. Wages in manufactures rose
6%, capital investment and profits much more.* It is argued by the
apologists of capitalism that a rise in other wages compensates for
the relative fall of wages in manufactures. It does not. The wages
of all workers rose not much over 12%, dividends and interest 77%.
The major part of dividends and interest is not consumed, it is

*In the twenty-year period 1909-29 the average yearly rate of increase in interest was
9.3%, in dividends 7.1%, and in wages and salaries 6.5%. Robert R. Doane, The
Measurement of American Wealth (1933), p. 48. The increase in wages was less than
t>.5%, because that percentage is enlarged by the inclusion of salaries, which rose much
more than wages.

[^^

CONSUMPTION^
GOODS J)

m3 +ISiif

nz^

isi6

nZT

r;^ iqx<^

V

VII. CONTRADICTIONS IN PRODUCTION AND CONSUMPTION.

156 The Decline of American Capitalism

re-invested; the major part of wages is consumed, it is spent on con-
sumption goods (and services). Because o£ these developments a
deficiency in consumption is eventually created, an expression o£ the
antagonism between production and consumption, of the contradic-
tion between the unconditional increase in production and the con-
ditional increase in consumption.

The economic contradictions in the movement of production and
consumption are necessarily expressed in class antagonisms:

Struggle between the workers and employers over wages: while
wages may rise absolutely, they always fall relatively to profits.

Unequal class distribution of the national income: while the work-
ers' absolute share may rise, their relative share falls.

Unequal class distribution of consumption: while the workers' ab-
solute share may rise, their relative share falls, and proletarian con-
sumption always tends toward a minimum.

Considering the small increase in general consumption, there was
not much, if any, increase in consumption among the workers. Most
of the rise in total wages was concentrated among the better-paid
workers, who are apt to save more of an increase than they spend
(workers' savings rose in this period). Moreover, there was a fall
in consumption among workers in the depressed industries and among
the 1,000,000 workers who in this period were added to the reserve
army of the unemployed. At the same time there was a substantial
rise in consumption among the other classes {not the farmers). It
rose considerably in the circles of the lower and intermediate bour-
geoisie, among whom the automobile, modernistic furniture, and
Mexican handicrafts became symbols of "cultural" standards of living.
And there was a sharp upward spurt in conspicuous competitive
consumption in the circles of the upper bourgeoisie, particularly among
the speculators who "cleaned up." The class distribution of consump-
tion (Table II) became more unequal. CapitaUst production, in the
epoch of its upswing, increases consumption, but mainly among non-
workers: economically regardless of who the consumers are, its
whole class-political arrangements insure a concentration of consump-
tion gains among the non-workers.

The prophets of prosperity (and now of Niraism) not only assumed
that the workers were "enormously" increasing their share in con-
sumption but that already they were the largest consumers. "The
worker," said one of them, "is our greatest and most profitable cus-
tomer. Our prosperity is 86% derived from our working population,
for the millions of wage-earners constitute just that proportion of

Economic and Class Contradictions

157

TABLE II

Class Distribution

of Consumption,

7925

NUMBER

PER-

PER-

CLASS*

IN CLASS

CENT

AMOUNT

CENT

AVERAGE

Working Class:

(millions)

'

Wage-Workers

27,750,000

58.5

$18,250

39.7

$660

Clerical

4,750,000

1 0.0

3.500

7.6

735

Farmers

7,400,000

15.6

4,500

9.8

610

Bourgeoisie:

Lower

4,300,000

9.0

6,000

13-0

1.395

Intermediate

2,880,000

6.1

7.250

15.8

2,515

Upper

382,241

.8

6,500

14.1

17,000

Total

47,462,241

$46,000

$970

•Wage-workers include 2,300,000 hired farm laborers; farmers include 1,200,000
farm laborers working on home farms; bourgeoisie — capitalists, rentiers, merchants, etc.,
and managerial, supervisory and technical employees — is grouped according to income:
lower, incomes below $3000 yearly; intermediate, incomes of $3000 to $10,000; upper,
incomes of $10,000 and over. Number in class includes only the gainfully occupied.

Source and methods of computation: Consumption means retail sales of tangible con-
sumers goods plus food produced and consumed on farms. The Census Bureau estimates
retail sales in 1929 at $49,000 million (United States, Fifteenth Census, 1930, Distribu-
tion, V. L Retail Distribution (1930), pp. 47-53). It is assumed that retail sales were
$1,000 million less in 1928, or $48,000 million. From that is deducted $4,400 million
for goods which are essentially capital goods or supplies (motor trucks, farm implements,
office, school, and store supplies, but not automobiles and household appliances), to
which is added $2,400 million for food produced and consumed on farms, making a
final total of $46,000 million. The workers' budget is made up of 31% spent on food,
13% on clothing, 5% on furniture and house furnishings, and 8% miscellaneous goods
such as radios, refrigerators, etc., or 57% of the workers' income spent on consumption
goods; balance, 24% for rent, light and fuel and 19% for illness, amusements and sav-
ings. (These estimates represent a revision of data in the cost of living in the United
States, U. S. Bureau of Labor Statistics, Bulletin 357.) Of the farmers' income (see
Chapter VI), $2,100 million spent on consumption goods, to which is added the figure
for food produced and consumed on farms. Clerical employees are assumed to spend
55% of their income on consumption. If dwellings were included the share of workers
and clerical employees in consumption would be materially lowered. "Average" in the
case of farmers and intermediate and upper bourgeoisie means family share; in the case
of workers, clerical employees and lower bourgeoisie, the family share in consumption
is somewhat larger than the "average" in this table, as these families often have more
than one person working.

our buying public."® But what Jacob Vanderlint said in 1734 was
sdll relatively true: "The labouring People in general are but half
the Consumers they ought to be." Although nearly three-fifths of the
gainfully occupied, the wage-workers consumed only two-fifths of

158 The Decline of American Capitalism

the goods produced; including clerical employees, the share in con-
sumption of the working class was only 47.3%, although this class
was 68.5% of the gainfully occupied.* The combined share in con-
sumption of the bourgeoisie was 42.9%, although this class includes
only 15.9% of the gainfully occupied. In the circles of the upper bour-
geoisie, the enormous total consumption of $6,500 million and average
consumption of $17,000 measures the conspicuous competitive expend-
itures in that class and contrasts sharply with the miserably small
share of the producers: the one depends upon the other. If the value
of food produced and consumed on farms is deducted from the farm-
ers' total, their share becomes much smaller, below 5%. Most of the
farmers' income is spent on the payment of interest and taxes and
in the purchase of equipment and supplies, which are inescapable
expenses. Their purchases of both consumption and capital goods
did not account for more than 7% of the total. The farmer, whose
share in consumption decreased sharply, is no longer necessary to
capitahst prosperity.f Standards of living among wage-workers, cler-
ical employees, and farmers (except the prosperous small upper layer)
were roughly:

Below subsistence levels, 10,000,000.

Subsistence levels, 20,000,000.

Comfort levels, 6,500,000.

Thus there were, including dependents, at least 85,000,000 persons
living on or below subsistence levels — in the "Golden Age" of American
capitalism! That was during an upswing of capitalism; conditions
must become worse in the epoch of decline.

Not only was the pre- 1929 prosperity not based upon consumption,
it was least of all based upon consumption by the workers. Consump-

* Robert R. Doane, The Measurement of American Wealth (1933), p. 75, estimates
that, in 1929, the workers' share in all expenditures, including services and finances, was
31%; the agricultural share was 10%.

t That the farmers are no longer necessary to capitalist prosperity is brutally admitted
by the New York Trust Company in its publication, The Index (January, 1932, pp.
16-17): "Another view widely held but not so frequently expressed is that, relatively,
agriculture no longer constitutes a major factor in our highly industrialized economy.
. . . While [the farmers' expenditures] are important and probably, as in the case of
exports, represents a margin on which a good proportion of profits are based, they are
not large enough to warrant the assertion that the national welfare depends to an over-
whelming extent upon agricultural prosperity, or that recovery from depression can be
brought about by restoring farm prices to their previous levels. ... In recent years
American industry has not been affected substantially by changes in farm purchasing
power."

Economic and Class Contradictions 159

tion is necessary to production, but capitalism is incapable o£ system-
atically developing the conditions of consumption. It was (and is)
assumed that new purchasing power was (and can be) distributed
proportionally among all groups of the people and in a manner to
balance consumption and production. But there is no such balanced
distribution under capitalism. The workers' share in new purchasing
power is always smaller than the share of all other classes, and
investment income always rises more than consumption income. Hence
the unstable equilibrium of capitalist prosperity is undermined by
the action of economic forces which involve a class antagonism: cap-
italist production and accumulation constantly limit the purchasing
power and consumption of precisely that class, the workers (and
poorer farmers), whose consumption is indispensable to maintain a
balance between production and consumption. The temporary equi-
librium of capitalist prosperity is shattered when the mounting
forces of production are unable to overcome the mounting barriers
of the limited conditions of consumption. Crisis and breakdown
follow.

CHAPTER XI

Excess Capacity, Competition,
and Speculation

Jl HE antagonism between production and consumption, the conflict
between the absolute expansion of one and the conditional expansion
of the other, was particularly sharp in the period 1923-29. The growth
of new and old industries, the consequent increasing output and ab-
sorption of capital goods, and the rising productivity of labor greatly
augmented the forces of production, which clashed with the limited
conditions of consumption. These developments resulted in a higher
composition of capital, an increase in excess capacity, the intensifica-
tion of competition, more superabundant capital, and a stronger down-
ward pressure on the rate of profit. The situation was already acute
in 1926; and the danger was recognized by a financial journal:

"Capital has become so abundant that it seeks to sell itself for use
in almost any sort of productive enterprise. . . . This country has
an exceedingly ample equipment of manufacturing plant; its efficiency
level, in rising decidedly, has for practical purposes increased the
proportions of our overequipment; and it is enabled to continue for
the present by the superabundance of capital which seeks incessantly
some place in which it may earn a reasonable return for its use. This
is the general mechanism by which manufacturing competition has
now been sharpened to unprecedented severity. The competition must
go on, for failure to compete will mean the rapid destruction of
capital; necessarily the failure to succeed will also mean the loss of
capital; and loss of this character is certain to occur on a pretty con-
siderable scale because our production is obviously greater than our
power to absorb it." ^

"Superabundance of capital" — because of low wages and high profits,
of changes in the composition of capital and the increasing appropri-
ation of surplus value.

"Our production is obviously greater than our power to absorb
it" — because capitalist production and accumulation limit purchasing
power and consumption among the masses of workers and farmers.

The tendency of the rate of profit to fall was strengthened. Efforts

160

Excess Capacity, Competition, and Speculation i6i

to check the fall increased competition and excess capacity and created
more downward pressure on the rate of profit. The experience of
one company organized in 1919 to manufacture household appliances,
which within four years captured one-quarter of the market, was
typical:

"The income of this company increased very rapidly until its market
became satisfied and its competitors caught up, and thereby limited
sales to a 'fair share' of a market rapidly becoming saturated by the
efforts of this single manufacturer. In seeking more than a fair share
of the available market its production facilities were expanded to a
capacity sufficient to produce two-thirds of the annual requirements
of the industry. This overcapacity is now a burden on the business,
since the relative dollar volume of sales from its plant investment
has fallen off on an average of almost 10% annually since 1926. . . .
Larger profits were secured in 1923 and 1924 than have been earned
in recent years on a greater volume of sales. . . . More and more
markets are being saturated by our methods of mass production, and
as many of these show signs of becoming limited markets, the tendency
toward declining income is broadening to include many well-known
and wealthy corporations."^

The tendency of the rate of profit to fall forced efforts to raise
profits by reducing costs or increasing output to secure a larger share
of markets, or by a combination of both methods. While this always
meant greater capacity, it did not always mean greater expenditures
on capital equipment. More economical use of raw materials, utiliza-
tion of waste, and standardization of products increased capacity and
output. Or labor was exploited more intensively; one method was
the "stretch-out" system, by which one worker tended more machines.
In the case of cotton mills, although there was in 1924-29 a net
shrinkage in machinery, hours worked per spindle rose from 2,353
to 3,073 by growing use of the double-shift.* As these methods increased
capacity and output without the buying of new equipment, there
was no corresponding development of purchasing power and con-
sumption among the workers producing capital goods. The result
was an aggravation of excess capacity and competition.

Productive capacity was, however, augmented mainly by investment
in new equipment. Capital was abundant, because of high profits.
And credit was abundant, because it is the nature of capitalist pro-
duction to inflate credit in the prosperity phase of the cycle. Invest-
ment in new capital equipment was stimulated by the unusually
rapid improvement in technological efficiency, increasing greatly

i62 The Decline of American Capitalism

the productivity of labor and the reduction of labor costs. But this
meant a higher composition of capital: less variable capital (wages)
and more constant capital (equipment and materials), limiting the
workers' purchasing power and consumption. Productive efficiency
and output were developed regardless of the relatively limited condi-
tions of mass consumption. The result was an aggravation of excess
capacity and competition.

Excess capacity and competition were particularly marked in the
newer industries. Their initially large profits and constantly growing
markets led to an overexpansion o£ existing plants and the establish-
ment of new, unnecessary plants by capital seeking profits anywhere,
anyhow. "There is no better illustration than the pouring o£ new
capital into the radio-receiving set industry in 1928 and 1929. Some
of the pioneers made very large profits which they wasted by in-
vesting to increase their output. At the same time the cost of pro-
duction was lowered a great deal by one maker. In the short space
of 18 months the potential production of this industry was increased
threefold, to an estimated 15,000,000 sets annually by the end of 1929.
Even in that year the whole market absorbed only a little over 4,000,000
sets."* This was generally true of all the newer industries, where an
initial high rate of profit was transformed into its opposite, a low, fall-
ing rate of profit. The newer industries' contribution to excess capacity
was enlarged by their products competing with older products. The
radio competed with the phonograph, rayon with the older textiles,
rubber and substitutes with leather, celotex and 21 other products with
wood. The result was an aggravation of excess capacity and competi-
tion.

The expansion of plant capacity beyond the needs of their own
markets led many enterprises to "take up the slack with sidelines."
That is, they added new products to their output. The General Elec-
tric Company and the Westinghouse Electric and Manufacturing
Company began to make radios. . . . Two automobile accessories com-
panies went in for the manufacture of radios, and one of them added
hardware for good measure. ... A radio company began to manu-
facture electric refrigerators. So did the Savage Arms Company, and
it included washing machines. . . . General Motors added electric
refrigerators, radios, dental apparatus, and other products unrelated to
automobiles. . . . The American Car and Foundry Company became
manufacturers of motor buses, the Anaconda Copper Company of
copper and brass products, the Aluminum Company of America of a
whole series of new products. . . . The American Ice Company, threat-

TfT"

Excess Capacity, Competition, and Speculation 163

ened by mechanical refrigeration, dipped into surplus and started
a power laundry business. . . . Another company, manufacturing
billiard tables, added phonographs and radios to its output. . . . This
continued during the depression: General Motors began to manufac-
ture gas refrigerators; the Pennsylvania Railroad built a brass foundry,
the most efficient of its type.^ . . . Where these "sidelines" meant the
use mainly of old equipment they tended to raise the rate of profit,
although lowering it for other enterprises; where new equipment
was mainly used it tended eventually to lower the rate of profit while
raising its mass. ... At the same time there was an increase of in-
tegration, the combination in one enterprise of different processes or
parts of manufacture. . . . The result of all these efforts to raise the
mass of profits and check the fall in the rate was an aggravation of
excess capacity and competition.

Excess capacity was enormous. In 1928-29, in spite of the sharp
upward spurt in production, most American industries were capable
of producing from 25% to 75% more goods than markets could
absorb.

The unused portion of excess capacity, ranging up to 75%, was par-
ticularly great in the newer industries: radio, automobiles, rayon,
chemicals. . . . Because of the growing use of electric power, more
efficient combustion methods, and the higher productivity of labor,
coal mining was increasingly tormented by unused capacity. . . .
There was an unused capacity of 15% in paper manufacture, 20% in
petroleum refining, 25% to 40?-^ in glassware, 45% in wheat flour, in
textiles from 15% in cotton to 40% in silk, and in iron and steel from
5% in steel ingots to 45% in pig iron. ... In sugar refining the un-
used capacity was 100%. . . . While capacity in the plants of the
United States Steel Corporation rose 15%, operations fell from 89%
of capacity in 1923 to 87% in 1929, with an average of 82% operation
in 1924-29. . . . Unused capacity was 28% in Portland Cement mills,
50% in boots and shoes, and 40% in clothing. ... In shipbuilding,
output fell from 9,472,000 gross tons in 1919-21 to 631,000 gross tons
in 1927-29, an indication of tremendous unused capacity. ... It
amounted to 64.2% in central electric stations.^ . . . Considerable ex-
cess capacity existed also in oil and metal production, on the railroads
(partly because of bus and motor-truck competition), and in electrical
manufacturing.

Where excess capacity was unused, its fixed costs ate into realized
profits, forced down the rate of profit and was a perpetual invitation
to enlarge output regardless of the limited, saturated condition of

164 The Decline of American Capitalism

markets. Where excess capacity was used, it meant an output of
commodities beyond the existing effective demand (in terms of avail-
able purchasing power), which aggravated competition and lowered
prices to unprofitable levels.

Excess capacity is related, both as cause and effect, to the dispro-
portions always prevailing in capitalist production. Any considerable
excess capacity in an industry creates disproportions in its own inner
relations and in its outer relations with other industries. Differences
in the rate of growth of industries, particularly when new industries
develop, create new or intensify old disproportions. There is relative
overdevelopment of some and underdevelopment of other industries.
One result is instability: competition of industry against industry, more
pressure on limited markets, a stronger drive toward overproduction.
The disproportions are a result of the planlessness of capitalist produc-
tion. But the planlessness itself and the disproportions it engenders
are an outgrowth of the antagonism between production and con-
sumption : of the greatest of all disproportions, that between the output
of capital goods and consumption goods. Capitalist production is a
"continual process of disproportionality." The disproportions change
continually; they are not destroyed but "overcome" by disproportions
creating new relations and assuming new forms which permit an
upward movement of production. This process results in the temporary,
unstable equilibrium of prosperity, an equilibrium created and main-
tained by perpetual changes within itself, temporarily "easing"
contradictions. But eventually the accumulating disproportions change
in a manner which upsets the equilibrium, and prosperity collapses
into depression.

Where prices are not lowered to unprofitable levels by excess capacity
and the aggravation of competition, the same result may be indirectly
achieved by multiplication of the costs and wastes of distribution.
This is a characteristic aspect of capitalist production. Changes in the
composition of capital, which increase the productivity of labor, de-
crease the relative wages of the workers, and thus limit the conditions
of consumption. The capitalist is continually reducing labor costs;
it never enters his head to raise wages. But this develops an antago-
nism. Distribution costs mount as a larger mass of commodities are
thrown upon relatively smaller markets and competition is aggra-
vated. The part of consumer price represented by distribution costs
rose from 30% in 1870 to 55% in 1930. Most of the increase was in
selling costs. It cost more in 1922-28 to get a $25 order from a retail
grocer than it did in 1902 to get a $75 order. Traveling salesmen rose

Excess Capacity, Competition, and Speculation 165

from 179,320 in 1920 to 223,732 in 1930, or 25%/ Instalment selling
added greatly to distribution costs. So did advertising. Its devotees
justify advertising with all sorts of complex arguments. But they are
w^rong. The increase in advertising (nearly $2,000 million in 1929) is
a direct result of the growing antagonism between production and
consumption, of the clash between the expansion of production and
the limitation of consumption, with which is involved the problems
of excess capacity, mounting overhead costs, aggravated competition,
and limited markets. Advertising does not lower prices, it tends to
raise them: the purpose of an advertiser is "to Hft his product out of
competition" and secure more sales and higher prices. In its methods
advertising degrades truth, is cynical of mass intelligence, caters to
the lowest instincts, and uses fraudulent economics and worse psychol-
ogy.* That does not worry the capitalist, of course. But there is worry
in the fact that distribution costs, including advertising, tend
eventually to lower the rate of profit.

Capitalist production saves on labor and multiplies the productive
forces. But two contradictions arise which constantly torment capital-
ist enterprise. Saving on labor decreases relative wages and limits the
conditions of consumption. This sets in motion the forces of excess
capacity, sharpened competition, and mounting distribution costs.
These costs absorb much, if not most, of the saving on labor, and
eventually strengthen the downward pressure on the rate of profit.
The efforts of capitalist enterprise to escape these manifold contra-
dictions created bedlam:

"American business has gone 'salesmanship mad' in the last ten
years, due to increasing economic pressure and narrowing net profits,
and has utterly overstressed high-pressure personal salesmanship. . . .
A great horde of salesmen is overruning the country, 'pepped up' and
trained to the last notch of slick salesmanship. The cost of personal
selling has in the meanwhile mounted, and the results per unit of
effort have declined. Dealers and consumers alike have been pressed
beyond the last degree of decency and good business. The number of
commodities on the market and the number of salesmen representing

* "Every human being has a vote every time he makes a purchase. No one is dis-
franchised. . . . Every day is election day." W. T. Foster and Waddill Catchings,
Profits (1928), p. 133. This "democracy of the consumer" is as limited as bourgeois
democracy in general. The consumer's freedom of choice is enormously limited by the
pressure of advertising, whose job it is to ma\e customers; it is still more limited by
income. Only the rich enjoy this democracy, as only they really enjoy other forms of
bourgeois democracy.

i66 The Decline of American Capitalism

them is now enormous. . . . The dealers, if they 'fell' for the salesmen,
would buy 500% to 1000% more goods than they could ever afford —
or should be asked— to buy. . . . They merely pile up the cost of sell-
ing and increase waste. . . . The vast bedlam of salesmanship and
salesmen, and the noise of their competitive shrieking, and the an-
noyance of their unrelenting, almost desperate tracking down of
prospects, is growing greater every year. . . . And the amazing thing
is that with all this enormous effort we can sell only 6<^/q of the prod-
ucts that American factories can make." ®

It was bedlam. "The amazing thing is that with all this enormous
effort we can sell only 65% of the products that American factories
can make" — while the majority of the people were living at or below
subsistence levels! Bedlam — because industry retained in higher profits
and distribution wastes what should have gone into mass consuming
power. (One part of distribution wastes, it is true, represents wages,
hence consuming power; but another part represents salaries and
profits whose recipients tend to invest more than they consume.)

Bedlam was styled the "new competition." One commodity began
to compete with all other commodities. Industry competed with in-
dustry; an industry, otherwise ruthlessly competing within itself,
combined for cooperative competition with other industries to secure
"a larger slice of the consumer's dollar." Factors formerly cooperating
began to compete; where once there was the manufacturer, the whole-
saler, and the retailer, now chain stores abolished many wholesalers,
manufacturers opened their own stores, and chain stores opened their
own manufacturing plants.

The "new competition" was aggravated by more "monopoly competi-
tion," both activated by the tendency of the rate of profit to fall.
Monopolist combinations, the large aggregations of corporate capital,
competed in the same markets or over the prices of materials (raw and
semi-finished) they bought and sold among themselves. Monopolist
combinations competed with small producers by capturing their mar-
kets or depressing the prices of the semi-finished materials or parts
bought from the small producers. It is an essential technique of monop-
olist combinations to raise the price of goods they sell and depress
the price of goods they buy. Thus monopoly, arising out of competi-
tion and striving to overcome it, simultaneously intensifies competition
as a means of increasing the mass of its profits at the expense of non-
monopolist enterprise.

It was bedlam. . . . Forced to utilize its excess capacity, the petro-
leum industry wastefully and unprofitably flooded the markets with

Excess Capacity, Competition, and Speculation 167

oil. . . . Excess capacity in refining led to the multiplication of gaso-
line retail outlets, which rose to 318,000 in 1929, one to every 83 reg-
istered automobiles; the situation was made worse by Shell Union Oil,
waging war on all fronts, starting its own chain of gasoline stations.
. . . Natural gas competed with manufactured gas; the competition
of electric power made coal a "sick" industry. . . . Bitter competition
among manufacturers of tires led to the sale of tires through company
distributing chains, mail-order houses, and service stations. . . . Manu-
facturers of products competing with wood spent $22,000,000 through
their associations on promotion and selling campaigns against lumber,
which retaliated with a campaign of its own. ... To meet the com-
petition of rayon the older textiles spent "immense" sums on "con-
sumer advertising," $750,000 yearly by one company alone. . . . The
National Retail Shoe Dealers Association in 1927 appropriated
$4,000,000 for an advertising campaign to sell more shoes on the basis
of style and color appeal; the industry was capable of producing three
times more shoes than the market was absorbing. . . . The fall in
food consumption, accompanied by increasing productive capacity, led
forty different food groups to mobilize and wage war on each other.
. . . Mayonnaise invaded the butter market; at a convention of the
Mayonnaise Manufacturers Association a "butterless banquet" was
served and a campaign was launched to "popularize mayonnaise
among consumers as a substitute for butter." . . . The advertising of
a cigarette company, warning against the bad effects of sweets, led
to organization of a Sugar Institute which spent millions advertising
the merits of sugar. . . . Appropriations of $300,000 were made by
the United States Fisheries Congress, by the Ice Cream Manufac-
turers Association, and by the Allied Baking Industry to "educate"
consumers to buy more of their products in preference to other prod-
ucts. . . . The market was flooded with 402 brands of dentifrices,
whose advertising involved millions of dollars and millions of lies.
. . . The "woman beautiful" had her choice of 2,500 perfumes and
nearly as many face powders: one manufacturer advertised: "A face
powder for every mood!" . . . Automobiles and cigarette advertising
reached new high levels in money and new lows in tone. . . . Drug
stores sold 100 more articles than a few years previously; candy was
sold in clothing, dairy, dry goods, drug and grocery stores and in
delicatessens, bakeries, auto accessory stores and gasoline stations. . . .
As if there were not enough products on the markets, chain stores
increased the number of their "private" brands, sales of which rose
to $762 million in 1929. . . . Chain stores, considered a "rationaliza-

i68 The Decline of American Capitalism

tion" of distribution and a measurable solution of its problems, ag-
gravated competition and excess capacity. Their pressure forced in-
dependents to organize "voluntary chains." Chain competed with
chain, forcing mergers and combinations. The larger chain-store sys-
tems demanded and secured price concessions from manufacturers;
some chains simply informed manufacturers at what price their goods
would be bought. At the same time, chain stores increased their manu-
facturing activities and plant capacity, competing directly with manu-
facturers, who met the challenge with mergers and combinations.^
... It was, and is, bedlam.

One result was a great increase in instalment selling, and it added
to the costs of distribution. In 1929, instalment sales amounted to
|6,ooo million, or 12% of all retail sales; the amount of instalment
debt outstanding at any given moment was from $2,225 million to
$2,500 million.^^ Large profits were made by the finance companies
dealing in instalment paper, in the creation of artificial purchasing
power. Instalment selling undoubtedly stimulated consumption and
production, as outstanding instalment credit represents sales which
would not have been made for the time being. But instalment selling
has obvious limitations as an offset to inadequate consumer purchasing
power. To escape the effects of excess capacity and depressed mass
consumption, instalment selling must increase progressively and cover
industry as a whole. The one is impossible because there are limits in
the incomes of instalment buyers, the other is impossible because in-
stalment credit is confined to five or six kinds of durable consumption
goods (clothing is an exception, but unimportant). The creation of
artificial purchasing power was further limited by its concentration in
the newer industries — automobiles (one-half of all instalment sales),
radios, washing machines, mechanical refrigerators; only two of the
older industries, furniture and sewing machines, were substantially
represented. In these industries, sales and output were augmented by
instalment selling; it quickened and enlarged the growth of new
industries, an important factor in prosperity. But the result was over-
development, particularly in automobiles and radio. When instalment
buying reached its limits, manufacturers were left with an enormous
excess capacity. Moreover, instalment consumer credit, unlike producer
credit, is not payable out of earnings increased by the credit but out
of a constant income. It mortgages future income. This means that
eventually, when instalment sales become stationary or fall, new
income is used to pay for old goods previously produced and sold and
limits demand for new goods. (During depression, when new and

Excess Capacity, Competition, and Speculation 169

outstanding instalment credit falls, instalment payments lessen
demand for current consumption goods and make the depression
worse.) Instalment selling increases the instability of capitalist pro-
duction by augmenting output and sales of optional or postponable
goods. The industries using instalment selling waged ruthless competi-
tive war upon all other industries for a "larger slice of the consumer's
dollar." Capitalist production is bedlam.

Bedlam reached its climax in the theory of "progressive obsoles-
cence," seriously considered by the tormented magnates of industry,
finance, and advertising:

"If we are to have increasingly large-scale production there must
likewise be increasingly large-scale consumption. . , . To get more
money into the consumers' hands with which to buy . . . is a mere
minor stopgap. There is, however, a far greater and more powerful
lever available. I refer to a principle which, for want of a simpler
term, I name progressive obsolescence. This means simply the more
intensive spreading — among those people who now have buying sur-
plus— of the belief in and practice of buying more goods on the basis
of obsolescence in efficiency, economy, style or taste. We must induce
people who can afford it to buy a greater variety of goods on the same
principle that they now buy automobiles, radios and clothes, namely,
buying goods not to wear out, but to trade in or discard after a short
time when new or more attractive goods or models come out. The one
salvation of American industry, which has a capacity for producing
80% or 100% more goods than are now consumed, is to foster the pro-
gressive obsolescence principle, which means buying for up-to-dateness,
efficiency and style, buying for change, whim, fancy. . . . We must
either use the fruits of our marvelous factories in this highly efficient
'power' age, or slow them down or shut them down." ^^

This is economic and cultural lunacy, but a lunacy wholly in accord
with the social relations of capitalist production. Capitalism must
produce and sell goods, but from the standpoint of profit it makes no
difference what goods or who buys them.

The lunacy of "progressive obsolescence" was matched by the des-
peration of proposals to restrict production (now one of the aims of
state capitalism). Said the president of the Durham Duplex Razor
Company :

"Manufacturing merchandise faster than it can be sold is one of
the principal causes of the increase in competition. . . . We are turn-
ing out more merchandise than can be sold profitably. . . . Business

170 The Decline of American Capitalism

health can only be preserved by maintaining an equilibrium between
production and consumer sales.""

Thus was rejected the "principle" that production and prosperity
depend upon mass consumption:

"Limit production," with 2,500,000 workers already unemployed!

"Maintain an equilibrium between production and consumer sales"
"induce those people who now have buying surplus ... to buy a
greater variety of goods . . . not to wear out, but for style, change,
whim, fancy," while 85,000,000 workers and farmers were living on
or below subsistence levels!

In spite of the clamor about "mass consumption" and "mass mar-
kets," the equilibrium of capitalist production came to depend more
and more on artificially stimulating the "wants" of small groups o£
people with an excess of purchasing power (an aspect of the unequal
distribution of income). Luxury or variety production, representing
consumption of which the workers are deprived, acquired increasing
importance. The trade in luxury goods was one o£ the great stimulat-
ing forces in the rise of capitalism, and capitalist production since has
increased the output of luxuries more than the necessaries of mass
consumption. In 1923-29, the American output of luxury or variety
goods rose substantially because of the great rise in dividends and
interest, in speculative profits, and in the concentration of income.
Conspicuous competitive consumption was never as great, while mass
consumption was practically stationary. In its revolutionary youth
the bourgeoisie, particularly the Puritans, condemned luxuries, which
were hated reminders of feudal privilege and power. But the con-
demnation was withdrawn after the bourgeoisie became the ruling
class. Luxury is a badge of class differentiation and distinction, a
ruling class necessity.

Luxury is also an economic necessity in the capitalist system, based
upon class exploitation and antagonisms. As mass markets are sat-
urated because of the limited conditions of mass consumption, an
increase in production, other than capital goods, comes to depend
upon "those people who have buying surplus, who buy for style,
change, whim, fancy," and whose incomes, particularly the speculative,
rise steadily during prosperity. Surplus capital to flow into luxury or
variety production, where low wages and the lower composition of
capital (more variable than constant) yield an exceptionally high rate
of profit. This eases the pressure of surplus capital on the rate of profit
in other industries. But the high rate of profit in variety production
eventually tends to fall, because of excess capacity and competition and

Excess Capacity, Competition, and Speculation 171

because modern luxury production often requires large fixed capital.

Another contradiction arises: as mass production grows, and simul-
taneously limits mass consumption while augmenting surplus capital
and the higher incomes, capitalist industry depends increasingly upon
variety production, the opposite of mass production. This contradiction
becomes constantly more acute. Its "either or" aspect is thus described
by Carl Brinkmann, a conservative German economist who is now a
fascist :

"A new epoch seems to put modern civilization before the alterna-
tive either of clinging to the capitalist system with higher although
less equalized standards of living, or of embarking on a communist
planned economy with a primarily equalized although possibly very
low standard." ^^

Thus capitalism, in its decline, offers higher standards to the few
and lower standards to the many! In Germany, where capitalist decline
is most conspicuous, there is no marked decrease in the output of
luxuries but a great decrease in the output of mass necessaries. (The
reference to "possibly very low standards" in a communist society
is plain special pleading.)

Variety wants, particularly when they are stimulated artificially by
high-pressure advertising and are dependent upon speculative profits,
intensify the instability of production and prosperity. Another factor
of instability was the increase in the output of durable consumption
goods, whose buyers include workers and farmers, and which are of
the optional or postponable type.* The output of these goods falls
immediately and severely as prosperity sags, accelerating cyclical break-
down and aggravating depression.

Luxury or variety buying was enormously stimulated by the profits
of speculation. Speculative profits shot upward in 1925 (Table III),
precisely when the output of luxury goods and durable goods began
to mount most rapidly. Thus, in spite of all the talk of "prosperity
is mass consumption," from 1925 on, consumption and prosperity in-

* There is a similar development in England and all more highly industrial coun-
tries. "The demand for goods satisfying secondary needs . . . must increase the diffi-
culty of balancing consumption and productive capacity. . . . Instability of demand
through causes of this kind is associated with rising incomes rather than w^ith incomes
at a higher level. . . . But there seems no great possibility ■ of a continuous rise in
income." G. C. Allen, British Industries and Their Organization (1933), pp. 288-89.
These are the desperate economics of the decline of capitalism. Stationary mass incomes
and economic stagnation, lower mass standards of living, are to "assure" the stability
of production!

172

The Decline of American Capitalism

TABLE III

Growth of Speculative Profits, 1^2^— 2g

SPECULATIVE PROFITS

INDEX

INDEX

YEAR

AMOUNT

INDEX

DIVIDENDS

WAGES

(millions)

-INTEREST

1923

$1,172

lOO.O

lOO.O

1 00.0

1924

1,513

129.2

103.8

IOI.3

1925

2,932

250,6

II7.5

107.2

1926

2,378

203.2

132.6

II3.7

1927

2,894

247.4

I44.I

114. 6

1928

4,807

410.8

150.8

112.4

1929

4,684

400.3

177.2

«

* Not available.

Source: Speculative profits — computed from Bureau of Internal Revenue, Statistics of
Income for the respective years. Speculative profits are realized profits reported by income-
taxpayers from sale of stocks, bonds, and real estate, and capital net gains from sale of
assets held more than two years. Speculative profits of banks and other corporations,
which helped to swell dividends, are not included. While capital gains are not directly
speculative profits, they mainly are indirectly, as capital gains are largest and most
realized upon when values are inflated by speculation.

creasingly depended on the artificial purchasing power created by
instalment credit and speculative profits.

The upflare of stock-market speculation was preceded in 1923-24
by speculation in real estate, particularly the Florida "boom," cap-
italizing urban growth and greatly inflating values. (Inflation o£ land
values, which goes on continuously, is partly responsible for the miser-
able housing of the workers.) Stock speculation rose in 1925 and
surged upward in 1928—29, when speculative profits were four times
those of 1923. For the seven years 1923—29, speculative profits amounted
to $20,380 million. They rose five times as much as dividend and in-
terest payments and twenty times as much as wages. "Having no
origin in the manufacture or sale of goods or services, having no imme-
diate purpose to produce goods or services, speculative profits may
properly be designated as artificial increments to income. In the period
1927 to 1929 they served to keep consumer demand ahead of produc-
tion. ... A potential source of spendable income so vast as this
would not need to be drawn upon to more than one-fourth of its
maximum capacity to provide under stable price conditions an addi-
tion to consumer purchasing power unprecedented for so short a
period. . . . Speculators usually regarded profits as definitely so much
'money made,' and governed their spendings accordingly. . . . The

Excess Capacity, Competition, and Speculation 173

inference is exceedingly strong that the major influence prolonging the
last prosperity through its final two years was the enormous stream
of purchasing power coming from the security markets." ^^

Security speculation was never so frenzied. Prices of industrial com-
mon stocks rose an average of 19.4% yearly in 1922—29 compared with
2.8?/^ in 1901-13; the "values" of stocks on the New York Stock Ex-
change rose from $38,500 milHon on January i, 1927 to $59,330 million
on October i, 1928 and to $89,670 million on September i, 1929, a gain
of $40,000 million after deducting new issues.^^ Speculative profits
reported by income-taxpayers rose from $2,311 million in 1918-20 to
$12,385 million in 1927-29. If to brokers' loans on the New York Ex-
change, which rose from $3,219 million on April 30, 1926 to $8,549
million on September 30, 1929, are added margins, the total tied up
in speculation at its peak was over $11,500 million, and over $15,000 mil-
lion if all stock exchanges are included. The commissions of brokers
of the New York Exchange in 1928 amounted to over $400 million, or
an average of $365,000 for each of the 1,100 members ^^ (in addition to
speculative profits of their own). Speculation was a major industry.
Banks and other financial interests tied up with the speculative frater-
nity easily beat down the mild efforts to "normalize" speculation. "The
sky's the limit!" Leading stocks sold at from twenty-one to fourty-four
times their earnings.^^ Stocks sold at yields of less than 3% or 1% or
nothing — discounting not only the future but eternity itself.

The speculative fever was inflamed by manipulation, trickery, and
downright swindle, by all the institutional arrangements of capitalism.
. . . Investment "analysts" advised: "There are laws governing invest-
ment and speculation just as there are laws governing the universe.
Conform to these laws and you reap just rewards. Ignore them, either
wilfully or through ignorance, and you lose." . . . Halsey, Stuart and
Company hired at $50 weekly a University of Chicago professor to
act as Old Counselor in their radio hour, to broadcast material pre-
pared by the brokerage firm}^ . . . Executives of banks and other
corporations formed pools in the stocks of their own concerns. . . .
Corporations split up stocks to inflame the public's speculative hopes.
... A flood of wholly speculative security issues was unloosed. . . .
Scores of "trading companies," disguised as investment trusts, were
organized to speculate in stocks. ... A whole series of mergers pro-
moted speculative purposes. . . . Investment trusts, practically non-
existent in 1925 but whose resources by 1929 exceeded $3,000 million,^®
inflamed the speculative fever by their rapid expansion, their pur-
chase of stocks and issuance of new securities, their buying on "dips"

174 The Decline of American Capitalism

in the market, their absorption of new speculative issues, and their
connection with brokerage houses. . . . Speculation yielded higher
profits than production; corporations whose surplus rose greatly, much
of it in cash, placed billions in brokers' loans. . . . European money
flowed into American speculative markets; French speculators
"cleaned up" $307,000,000 in fifteen months in 1928-29.^° . . . Banks
manufactured speculative credit with the abandon of bankrupt gov-
ernments issuing paper money, while their security affiliates speculated
on a large scale; speculation and credit are linked together, an insepara-
ble part of capitalist accumulation. . . . The speculative fever was
inflamed by the Coolidge-Hoover administrations, and particularly
by Secretary of the Treasury Andrew Mellon, with his reductions of
the surtax on large incomes, his refunds of personal and corporate
income-tax payments, and his influence on Federal Reserve policy.
... It was also inflamed by vulgar economists who spoke as if specu-
lation and its jargon are the source of all values.* . . .One of them
wrote a whole book denouncing efforts to "moderate" speculation;
among other passages of cheap eloquence and worse economics was
this: "With marked progress in individual industries, in an era of
radical improvement in our economic life comparable to the industrial
revolution, attended by singular good fortune in the expansion of
foreign trade and achieving a dominant place in the firmament of in-
ternational commerce and finance, with peace at home and abroad
and with an administration in which the country has the greatest
confidence, it is little wonder that those who buy stocks, who in terms
of the economist are paying a present sum for an infinite series of
future incomes, should be inclined to pay a rather high price." ^^
Irving Fisher, professor of economics, a day or two before the market
crash in October, 1929, said prices were not high but low, "gains are
continuing into the future" and "predictions of heavy reaction find
little if any foundation in fact." Several weeks after the crash he said
it had created "false fear" and meant "no permanent ill effects."^*
. . . The "New Era" prophets rejected economic laws; after the crash,
ruining the hopes of "an infinite series of future incomes," the
economist of the Guaranty Trust Company, a Morgan bank, admitted

* Speculators and financiers are modern medicine-men, who make a fetish of their
jargon and endow it with magical powers. After two years of declining stock prices
it was suggested, to end the depression, that the market vocabulary abolish such phrases
as "selling climaxes," "resistance point" and "technical rally" as "tending to intensify
the bearish pessimism of the financial community." See New York Times, November
25, 1931.

380
3fcO
340
3Z0
300

aso
A(»o
x^o
xxo
xoo
J so

160
140
10.0
100

1*1

■

1^ 79.r/. 1

^m iHcotAts Of
^B ^lo.aootip

^^^i5/ INCOMES 0^^^
^^^3000 - $10,000 ^^

/

— — ^

— p

DISTRIBUTION OF
SPECULATIVE PROFITS

— 1

"■--.I

1^^

j

1

V

y

SPECULATIVE
PROFITS

-j

/

\

/

J::^J

1^

-1

/

\

/

,/

/

X

ri^

VIDENDS- INTEREST-,

-] ^^ 1

^

/

xf-**

,.>^^'^*"*

.^^^'

/

1

,...•'•••■

.^***

4*t«r^

-;;:::

-•^•** •• I

[JWAGES

il

13 I'W't my Mib HiT WW w

M

VIII. THE STAKES OF SPECULATION— 1923-29.

176 The Decline of American Capitalism

sadly: "It is evident that economic laws have resumed their svi^ay in
important particulars"! ^'

The fever seized upon widening circles of speculators. This was
magnified by the profiteers of prosperity, who insisted "everybody"
was speculating — bootblacks, clerks, and millionaires, poor man, rich
man, beggar man, thief. But millions of shares are not millions of
speculators. Two New York Stock Exchange firms, doing more than
10% of the Exchange's total business, had fewer than 12,000 active
margin accounts.^* In 1928 (the most representative year, as there was
no crash), 470,889 out of 4,070,851 income-taxpayers reported profits
from the sale of stocks, bonds, and real-estate, another 27,704 reported
capital net gains, and 72,829 reported speculative losses.^^ The total is
571,422 persons, not all of whom were necessarily active speculators,
offset by others who did not report. In all probability the number of
speculators was 750,000, and definitely not over 1,000,000. This in itself
was an enormous increase over pre-war years. Speculation aroused
get-rich-quick appetites, but the new speculators were mainly from
the middle class, which was becoming larger and wealthier. The
limited class character of speculation is clearly indicated in the distribu-
tion of speculative profits (Table IV). Income-taxpayers with incomes

TABLE IV

Distribution of Speculative Profits, i^i8-2g

INCOME GROUP

AMOUNT

PERCENT

Below $3,000

$1,387,000,000

4.6

$3,ooo-$io,ooo

4,920,000,000

16.2

Over $10,000

24,064,000,000

79.2

Total $30,371,000,000 loo.o

Source: Computed from Bureau of Internal Revenue, Statistics of Income for the re-
spective years.

below $3,000 yearly, mainly of the lower bourgeoisie, with a sprinkling
of better-paid skilled workers and farmers, received only 4.6% of
speculative profits. These petty speculators lost more than they
gained: speculation, directly and indirectly, expropriates small savers
and investors, redistributes wealth, and accelerates the concentration
of capital. Speculators of the intermediate bourgeoisie or upper middle
class (incomes of $3,000 to $10,000) "earned" substantial profits:
$4,920 million, or 16.2% of the total. But the real profits were secured
by the upper bourgeoisie: a total of $24,064 million, of which $8,000

Excess Capacity, Competition, and Speculation 177

million was "earned" in the two years 1928-29. As in 1929 there were
only 382,241 individuals reporting incomes o£ f 10,000 and over, not all
of whom were active speculators, the gains of speculation were concen-
trated in a handful of people. Incomes below $3,000 were barred from
making any substantial profits, except on a fluke, because they did not
have money for large-scale speculation; and most of them were
plucked. A few of them made enough profits to rise to the $5,000
class, many more rose from the $5,000 to the $10,000 class, while
speculators with incomes of $10,000 and over secured the largest
profits and rose to the higher income classes, particularly the highest:
the number of millionaires tripled, mainly as a result of accumulating
speculative profits.

Speculation depends, in final analysis, upon the exploitation of the
producers. The wages of the workers (and farmers' income) were
depressed relatively to profits. There was a decidedly more unequal
distribution and concentration of income, whose distribution favored
the investing and speculating classes, including the new middle class
of supervisory, managerial, and merchandising employees in corporate
industry. According to an apologetic economist: "The demand for
stocks varies directly with the surplus cash the people of the country
have after they have paid all living and business expenses and the
cost of ordinary construction and improvements. The stock market
has been high recently because the income of the people has been
large." ^^ But what are the impUcations? "Surplus cash" was high not
because "the income of the people" was large, but because of the
unequal distribution and concentration of income; there was not
much "surplus cash" among workers and farmers. If, and this is in-
conceivable under capitalism, the increase in the national income had
gone to the lower-paid workers and poorer farmers for use in con-
sumption, the larger incomes would have acquired no "surplus cash"
with which to finance their speculative spree. Much of the money tied-
up in speculation, moreover, was not new income but money secured
from loans on stocks and other forms of property: an aspect of the
concentration of wealth. Apologetic economists always insist on "analyz-
ing" gross totals and general trends instead of class proportions and
relatives. . . .

Speculation capitalized the rising productivity of labor and its
higher yield of surplus value. It was bound up with all the results of
changes in the composition of capital. The superabundance of capital
simultaneously increased excess capacity and inflamed speculation.
Although the general rate of profit was falling, many corporations

178 The Decline of American Capitalism

experienced a rising rate; speculation in their stocks affected other
stocks. The falling rate of profit drove capital after the higher profits
of speculation. This included corporations with a large cash surplus;
their profits were augmented by the high returns on brokers' loans,
nearly one-third of which was financed by corporations.

Underlying all these forces was the antagonism between production
and consumption, which depressing mass consumption and breeding a
superabundance of capital. Superabundant capital became more and
more aggressive and adventurous in its search for investment and
profits, overflowing into risky enterprises and speculation. Speculation
seized upon technical changes and new industries, which were intro-
duced planlessly, regardless of the requirements of industry as a
whole. Large profits were made by simple speculative manipulation.
In one case a small group bought control of the stock of a railroad
and sold it to the Pennroad Corporation, a holding company of the
Pennsylvania Railroad, for $37,898,000: the profit was $12,807,000.^^
The fall in the rate of profit stimulated mergers and combinations,
which grew unprecedentedly in 1923-29. Mergers and combinations
tried to check the fall in the rate of profit by control of production and
prices; but as they were enormously overcapitalized and increased
excess capacity, the final result was to strengthen the tendency of the
rate of profit to fall. Mergers and combination became the objects of
speculation; they yielded huge promoter's profits and inflamed specula-
tive hopes.

Monopolist combinations interlock with the great banks; there is a
fusion of financial and industrial capital. The financial oligarchy
strengthens its control over industry. Ownership increasingly becomes
a mass of paper claims upon production and income, the means and
objects of speculation, creating the illusion that paper values are the
source of all wealth. In the epoch of monopoly capitalism, which in
1923-29 consolidated its hegemony in the United States and is bound
up with the decline of capitalism, speculation becomes more active.
The financial oligarchy operates with the mass of paper claims and
increasingly subordinates the production of goods to the production of
speculative profits. It subjects whole industries to predatory specula-
tion and plunder (Insull, Kreuger). Where the profits of non-financial
corporations were only 14% higher in 1929 than in 1923, the profits
of financial corporations were 177% higher. The financial oligarchy is
necessarily and intimately identified with the banks and their financing
of speculation, with the stock exchanges, with all the speculative and
adventurous aspects of capitalist enterprise. Through the export of

Excess Capacity, Competition, and Speculation 179

capital, a means of checking the fall in the rate of profit, speculation
becomes international, encouraged by the financial overlords of mo-
nopoly capitalism.

Speculative profits, although they are an artificial creation of in-
come, constitute real claims upon production and goods, upon the
labor of the workers and farmers. In the final outcome, when inflated
values crash, past speculative profits become present and future losses,
and result in a restriction of consumption. But before the crash, specu-
lative profits promote prosperity to the extent that they are spent on
consumption goods (and services). Speculation, however, simulta-
neously aggravates the instability of prosperity and of capitalist pro-
duction. In this, speculation resembles excess capacity, which as it
grows stimulates the demand for capital goods and thus promotes
prosperity, although it also contributes to the ultimate breakdown of
prosperity because it intensifies competition, lowers the rate of profit,
and eventually limits the demand for capital goods. Primarily an
eiTect, speculation reacts and becomes itself a cause. By inflating
values, speculation puts pressure on corporate managements to raise
profits, and tends to increase competition, excess capacity, and over-
production. Speculation encourages risky enterprises, augments the
concentration of income, strengthens the adventurous character of
finance capital, and makes the unstable equilibrium of capitalist pros-
perity constantly more unstable because of an increasing dependence
upon luxury production.

CHAPTER XII

The Onset of Crisis and Depression

Jl HE antagonism between production and consumption is the basic
cause of economic instability, and of crises and depressions. It results
from the tendency toward an absolute exploitation of the workers,
the increasing production of surplus value, and an absolute devel-
opment of production while simultaneously limiting consumption.
But the antagonism is continuous, permanent. How is an equilibrium
achieved and maintained? Primarily by an increasing output and
absorption of capital goods. These are the outlines of the movement:

1. The production and absorption of capital goods directly promotes
the accumulation of capital:

a. It converts realized surplus value, profits, into capital, whose
accumulation is basic in capitaUst production.

^. It yields new profits, which are investible and become capital
because of the increasing output and absorption of capital goods.

2. The output of capital goods indirectly promotes consumption:
a. Wages are distributed, and are spent mainly on consumption

goods.

h. A part of salaries and profits is similarly spent.

The consumer purchasing power created by the production of capital
goods and spent on consumption is a net gain, as it represents no out-
put of competing consumption goods. Thus the capital goods industries
contribute to the sustenance of the consumption goods industries.
The antagonism between production and consumption is temporarily
overcome.

3. The output of consumption goods is active and profitable:

a. Wages are distributed, and spent mainly on consumption goods.

h. A part of salaries and profits is similarly spent.

c. Another part of the profits is invested and becomes capital because
of the increasing output and absorption of capital goods, either in
the form of capital goods to produce other capital goods or capital
goods to produce consumption goods (or services).

Thus the reaction of one department of industry upon the other
creates an increasing production in which the primary factor is the
output of capital goods. These goods give profits concrete forms,

180

The Onset of Crisis and Depression i8i

they embody capitaUst ownership and claims to income. Upon these
forms depend other forms of capital. While creating consumer pur-
chasing power (wages, part of salaries and profits), the output of
capital goods makes no direct demands upon such purchasing power.
Demands are made only eventually, when the new capital goods
begin to function as productive equipment. Thus pressure upon mar-
kets is lessened and an equilibrium is temporarily maintained between
production and consumption. There are other factors in the equilib-
rium, but the output of capital goods is fundamental.

Meanwhile speculation flourishes because profits are high. This
increases the output of luxury or variety goods, distributing wages and
creating demands for capital goods.

The equilibrium is temporary, is eventually shattered, because of
its own underlying causes. One part of capital goods represents con-
sumption of which the workers are deprived. When new capital
goods begin to produce there arises an accumulating insufficiency of
buyers for their output (and the output of older capital goods). The
lag of wages behind profits, a stimulus to the accumulation of
capital and the output of capital goods, simultaneously limits the
conditions of consumption. New capital goods represent an increase
in the productivity of labor and in the scale of production, and a
decrease in relative wages, while the output of commodities grows.
Excess capacity, overproduction, and competition force down the rate
of profit. This for a time promotes prosperity as it means new invest-
ment, i.e., creates new demands for capital goods to overcome the
fall in the rate of profit. More wages are distributed, more capital
absorbed. But as the new capital goods become "procreative," the
forces of production become greater, the conditions of consumption
relatively more limited. The equilibrium begins to totter. A minor
cyclical depression appears, as in 1927, when the rate of profit in manu-
factures fell from 12.1 to 10.2 on fixed capital and from 7.1 to 5.5 on
total capital, a fall of 15.7% and 22.6% respectively. While not
disastrous, the fall was threatening. It stimulated efforts to raise profits
by increasing the productivity of labor, and created new demands for
capital goods. The index of machinery output rose from 153 in 1926
and 146 in 1927 to 157 in 1928 and 191 in 1929, while the index of total
output of capital goods moved from 147 and 143 to 145 and 170. (The
index of total capital goods was slightly lower in 1928 than in 1926
because of a lower output of transportation equipment, rising again
in 1929.) In consumption goods the rise was smaller, from 125 and 124
to 130 and 131.^ The upsurge of prosperity was based on the mount-

i82 The Decline of American Capitalism

ing output o£ capital goods, which sustained the (smaller) rise in
consumption. But this meant an enormous exertion of the productive
forces— output of manufactures rose from $41,000 million in 1927 to
$47,000 million in 1929, an unprecedented rise accompanied by a great
increase in the productivity of labor. An enormous burden was placed
upon all markets, both for capital goods and consumption goods,
particularly as the great increase in output took place in the first six
months of 1929: after June production decreased. While the rate of
profit and even wages rose slightly,* this was bound up with the con-
ditions of approaching cyclical breakdown. For the rise in the rate
of profit and in wages was the temporary result of an absolute exer-
tion of the productive forces which set in motion:

1. An overproduction of capital goods (including construction) :
a. Demand and output both fell as the consumption goods indus-
tries, their productive powers enormously augmented and markets
limited, restricted their orders for capital goods.

h. Employment and wages fell among capital goods workers, les-
sening demand for consumption goods (and services), restricting the
creation, by capital goods industries, of that consumer purchasing
power which sustains a high level of output in the industries producing
consumption goods.

2. An overproduction of consumption goods:

a. The overproduction latent in excess capacity became actual in
terms of limited markets (particularly durable consumption goods)
as accumulated capital goods spawned a mass of new commodities.

h. This condition was aggravated by unemployment and smaller

* "It is purely a tautology to say that crises are caused by the scarcity of solvent
consumers, or of a paying consumption. The capitalist system does not know of any
other modes of consumption but a paying one, except that of the pauper or of the
'thief.' If any commodities are unsalable, it means that no solvent purchasers have been
found for them. But if one w^ere to attempt to clothe this tautology with a semblance
of profounder justification by saying that the working class receive too small a portion
of their own product, and the evil would be remedied by giving them a larger share
of it, or raising their wages, we should reply that crises are precisely always preceded
by a period in which wages rise generally and the working class actually get a larger
share of the annual product intended for consumption. From the point of view of the
advocates of 'simple' (!) common sense, such a period should rather remove a crisis.
It seems, then, that capitalist production comprises certain conditions which are inde-
pendent of good or bad will and permit the working class to enjoy that relative pros-
perity only momentarily, and at that always as a harbinger of a crisis." Karl Marx,
Capital. V. II, p. 476. Marx adds: "Advocates of the theory of crises of Rodbertus are
requested to make a note of this." And we might add the American advocates of the
"policy of high wages"!

The Onset of Crisis and Depression 183

payrolls in capital goods industries, lowering mass purchasing power
and consumption.

c. Consumption goods industries began to retrench; workers were
fired or wages cut or both, again lowering mass purchasing power and
consumption.

d. The decrease in industrial and speculative profits (stock values
crashed) lessened demands upon the luxury industries, which re-
trenched on employment and wages, lowering mass purchasing power
and consumption.

e. These developments depressed the demand for capital goods (in-
cluding construction), whose output moved sharply downward, again
lowering wages, mass purchasing power, and consumption.

3. A decline in industry as a whole:

a. The crisis aggravated the disproportions between one industry
and another and within single industries, and created new dispropor-
tions which accelerated the slump in production.

b. Speculative or risky enterprises (all industry had become increas-
ingly speculative) were easily upset and aggravated the upset in the
more "sober" industries.

c. There was a sharp and steady fall in the activity of the industries
producing materials (raw and semi-finished).*

d. The slump in industry as a whole sharpened the "crisis" in credit,
prices, and other monetary factors: these the bourgeois economist
considers decisive, but they are simply effects reacting upon their
cause.

Overproduction appeared primarily in the industries which had been
the major sustaining factors in prosperity:
The output of machinery began to fall in June, 1929; new orders

* The overproduction of raw materials was an important factor in the breakdown of
prosperity, particularly on an international scale. In most raw materials the ratio of
world visible supplies to consumption rose sharply between 1923 and 1929, and still
more sharply after the crisis. (Robert F. Martin, "World Stocks, Prices and Controls of
Foodstuffs and Raw Materials," Harvard Business Review, July, 1932, pp. 437-40.) This
was a result of uncontrolled production, excess capacity, and ruthless competition, and
of the capitalist exploitation of agriculture in general and of agrarian countries in par-
ticular. The buying power of countries producing raw materials was severely restricted
by the disastrous fall in demand and prices. There was an unusually large slump in the
American export of goods and a total cessation of the export of capital, two of the
important factors in prosperity. For several years before the" crisis the export of goods
was practically at a standstill while the export of capital had become primarly an export
of interest, which strengthened the downward pressure on the rate of profit of excess
capacity and surplus capital, increased the instability of prosperity, and contributed to
the coming of crisis and depression.

184 The Decline of American Capitalism

for machine tools and foundry equipment had fallen 50% by the end
of the year, while employment in the machine industries as a whole
fell nearly 10%.

The output of automobiles began to fall in July and had fallen
57% by the end of the year; the output of rubber tires and tubes
fell 51%.

Construction began to fall in August and had fallen 52% by the
end of the year.

The output of iron and steel began to fall in July and had fallen
42% by the end of the year.

By the end of 1929 the output of manufactures as a whole, which
began to decline in July, had fallen 24%.^

As output in the heavy industries producing capital goods and
materials fell, it restricted the creation of consumer purchasing power
among the workers and thus lessened demand and output in the
consumption goods industries.* To a certain extent the fall in the out-
put of machinery was retarded, because enterprises made efforts to
overcome the faUing rate of profit by again increasing the produc-
tivity of labor with more efficient equipment. But these efforts, suc-
cessful in a minor depression, aggravate conditions in the midst of a
developing major depression, when markets break down precipitously
and extensively. Now the rate of profit fell disastrously — from 13.9 on
fixed capital and 7.5 on total capital in 1929 to 3.0 and 1.7 in 1930, a
decrease of 78.4% and 77.3% respectively. With the onsweep of the
crisis the output of capital goods fell more than that of other goods,
and much more than in the 1920—22 depression. In 1932 the output
of machine tools was 92.5% lower than in 1929, of foundry equipment
82% lower, of woodworking machinery 96% lower (the decrease in
construction was equally great) ; inability to make profits and convert
realized profits into capital led to a drop in investment from $15,000
million in 1929 to $3,000 million in 1932.^ Prosperity depends upon the
production of profit and its conversion into capital, a process which
determines whether the workers may work and live.

* "The excess capacity always present in such industries encourages the production
of more goods than the market will absorb at any price, and overproduction results. In
this manner the peak of production is driven ever upward, dealers* stocks begin to
mount as business recedes, and when the slump comes it is much more severe because
of almost complete shutdown of production. This is what happened to the passenger
car business, and the same overproduction, followed by collapse of production, took
place in other limited industries." W. W. Hay, "Manufacture of New Products an
Escape from Effects of Saturated Markets," Annalist, December 12, 1930, p. 988.

The Onset of Crisis and Depression 185

It was a crisis of overproduction in terms of the limited class con-
ditions of consumption. In the words of Marx: "If it is said that there
is no general overproduction, but that a disproportion grows up be-
tween various lines of production, then this is tantamount to saying
that within capitalist production, the proportionality of the individual
lines of production is brought about through a continual process of
disproportionality, that is, the interrelations of production as a whole
enforce themselves as a blind law upon the agents of production in-
stead of having brought the productive process under their common
control as a law understood by the social mind. ... If it is said that
overproduction is only relative, then the statement is correct; but the
entire mode of production is only a relative one, whose barriers are
not absolute, but have absoluteness in so far as it is capitalist. Other-
wise how could there be a lack of demand for the very commodities
which the mass of the people want? . . . All these objections to the
obvious phenomena of overproduction (phenomena which do not pay
any attention to these objections) amount to this, that the barriers of
capitalist production are not absolute barriers of production itself
and therefore no barriers of this specific, capitalist production. But the
contradiction of this capitalist mode of production consists precisely
in its tendency to an absolute development of the productive forces, a
development which comes continually in conflict with the specific
conditions of production in which capital moves and alone can move.
... It is not a fact that too much wealth is produced. But it is true
that there is a periodical overproduction of wealth in its capitalist and
self-contradictory form. . . . Capitalist production comes to a stand-
still at a point determined by the production and realization of profit,
not by the satisfaction of social needs. . . . The real barrier of capital-
ist production is capital itself. It is the fact that capital and its self-
expansion appear as the starting and closing point, as the motive and
aim of production; that production is merely production for capital,
and not the means of production mere means for an ever-expanding
system of the life process, for the benefit of the society of producers." *

The contradictory forces set in motion by the antagonism between
production and consumption are aggravated by other factors, includ-
ing monetary factors. But these monetary factors are not primary,
they are simply effects which react upon the fundamental productive
relations. Irving Fisher insists that crises are a result of fluctuations in
prices caused by changes in the value of money; that crises can be
avoided if there is no change in the general level of prices, wholly
possible if the "circulation of goods and the circulation of money . . .

1 86 The Decline of American Capitalism

should keep going at the same even pace ... or both streams grow
greater at the same rate or grow less at the same rate." ^ This is
theoretically and historically wrong. Crises and depressions have been
preceded by constant prices (1857), by falling prices (1873, 1893), by
rising prices (1907, 1920), and again by constant prices (1929). Fluc-
tuations in prices are a factor of instability in the measure that they
express and react upon underlying economic forces. They do aggra-
vate disproportions. But these disproportions always develop: price
movements merely affect the relation of one disproportion to another
and the combinations in which they appear.

Falling prices force efforts to raise profits by an increase in the
productivity of labor. But this results in a higher composition of
capital, lower relative wages (real wages may rise), greater excess
capacity, aggravated competition, a falling rate of profit, speculation,
and a drive toward overproduction under conditions of restricted
mass purchasing power and consumption.

Rising prices increase profits, although much of the increase is
fictitious and depends for its full realization upon lower prices to
come. But rising prices negate one of the fundamentals of capitalism,
the urge to produce and sell more abundantly and cheaply. Rising
prices and profits lower real wages (the productivity of labor rises,
if not much), redistribute income and purchasing power, encourage
speculation, and restrict mass consumption. The rate of profit tends
to rise, but falls again as the crisis develops. Excess capacity rises
primarily because markets are restricted by higher prices. Production
may be stationary or fall but overproduction develop in terms of
rising prices and the falling real value of mass incomes.

In both cases there are disproportions, although the relations and
combinations vary. And in both cases the basic disproportion is the
maladjustment between production and consumption.

But constant prices are no way out. There was a practically con-
stant price level in 1925-29. Irving Fisher considered this constancy,
which he attributed to the "manipulations" of the Federal Reserve
Board, a guarantee of continuing prosperity. The outcome was the
greatest of all cyclical breakdowns. For the constant price level was
itself a factor of instability. Constant prices contributed to an unusual
rise in profits because of the great increase in the productivity of
labor. This temporarily aided prosperity, under the prevailing con-
ditions, as it stimulated the output and absorption of capital goods.
But eventually constant prices hastened the coming of the crisis be-
cause they restricted purchasing power and consumption, while fall-

The Onset of Crisis and Depression 187

ing prices might temporarily have postponed the crisis by increasing
consumption. The constant price level wsls accompanied by rising
productivity and profits, practically stationary real w^ages, accelerated
accumulation, and changes in the composition of capital, more excess
capacity, a falling rate of profit, aggravated competition, frenzied
speculation, and an increasing production v^^ithin the limits of re-
stricted mass purchasing power and consumption. Prosperity crashed
into depression.

Prices affect the demand for capital goods, although other factors
are more important. Rising prices may limit demand and thus weaken
prosperity by limiting the increase in the output and absorption of
capital goods. Falling prices may stimulate demand and hasten the
overproduction of capital goods and the breakdown of prosperity.
Either one or the other may result from constant prices, depending
upon the level of prosperity. But whatever the particular combination
of factors, the moment must come when the output and absorption
of capital goods begins to fall because consumption has not kept
pace with production.

Thus prices act within the limits of the underlying economic factors :
these are primary. Cyclical breakdown develops under conditions
of falling, rising, and constant prices. The disastrous fall in prices
after a crisis, aggravating the cyclical breakdown and depression,
is itself an effect of the crisis — an effect which becomes a major cause
only in the analyses of the bourgeois economists.

In the pre-1929 era of prosperity everlasting, a whole school of
economists, accepting the temporary and incidental as permanent and
fundamental, stressed the importance of constant prices, of stabiliza-
tion. In spite of the demonstration that stable prices do not avert
cyclical breakdown, the theory reappears in the proposals of the
NRA, and of state capitaHsm, in general to "fix" prices and "stabilize"
the value of money. But the needs of capitalist production are identified
with higher output and lower prices, although these simultaneously
torment and upset it. Prices may be stable, but not productivity.
Profits rise disproportionately. The benefits of improved productive
efficiency are not passed on in the form of lower prices. Real wages
are adversely affected, as they generally rise only in periods of falling
prices. Instability is an element of capitalist growth. Stabilization,
along with its twin, the restriction of production, is an element of
capitalist decHne and stagnation.

The monetary approach appears more substantial in the arguments
of John Maynard Keynes, the economist of capitalism in extremis.

i88 The Decline of American Capitalism

Accepting the necessity of stabilization, he incorporates it in a larger
analysis which recognizes that prosperity depends upon the output
of capital goods, upon the increase in profitable investment. But he
stresses the monetary aspects and makes the output of capital goods
a function of the rate of interest. "It is," he says, "a large volume
of saving which does not lead to a correspondingly large volume of
investment (not one which does) which is the root of the trouble";
the slump in 1929 was "initially engendered ... by the deficiency of
current investment relatively to saving." ® The high market-rate of
interest discouraged new investment in capital goods, savings exceeded
investment, and the resulting decline in the output of capital goods
produced the crisis and depression. If the market-rate of interest had
fallen to the level of the natural-rate, i.e., a rate making it profit-
able for enterprise to borrow money to buy new capital goods, there
would have been no crisis and depression. The assumption is that,
if there is no divergence between the "market-rate" and the "natural-
rate" of interest, and investment equals savings, capitalist production
can uninterruptedly absorb a constantly greater output of capital goods
and prosperity flourish undisturbed. This ignores the crucial factors:

In 1928-29 there was an upsurge in new investment and in the
output of capital goods regardless of the prevailing interest rate:
buyers of new stock issues were plentiful and corporate surplus ample.

Increasing investment itself and the constantly greater output of
capital goods, not the interest rate, tormented capitalist enterprise
because of accumulating excess capacity, saturated markets, aggravated
competition, and the tendency of the rate of profit to fall, a fall
independent of any rise in the interest rate.

The increasing output of capital goods was (and always is!) accom-
panied by an accumulating deficiency in consumption.

While the immediate cause of the breakdown of prosperity was
the deficiency in the output of capital goods, the underlying cause was
the deficiency in consumption.

Oversaving is a factor in the cyclical process. Not because it creates
a deficiency in capital investment (and production) but because it
creates a deficiency in consumption by diverting to investment income
which should go into consumption. Keynes, who slights consumption,
does not consider "oversaving" that part of invested savings identi-
fied with excess capacity. Yet this part and the part which is not
invested at all both tend eventually to create a deficiency in con-
sumption. Assume that a "managed currency" so manipulates the
interest rate that investment comes to equal savings. Good. But what

The Onset of Crisis and Depression 189

of the deficiency in consumption, of a greatly increasing output of
consumption goods in the midst of hmited markets?

New investment, an increasing output of capital goods, is not
primarily a function of the rate of interest. It is a function of indus-
try's capacity to absorb new capital goods, dispose of consumption
goods at profitable prices, and yield a satisfactory rate of profit. Keynes
makes a satisfactory rate of profit depend upon the interest rate, in-
vestment depend upon the proportion of the expected rate of profit
to the current rate of interest. Actually it is, save in exceptional cases,
the reverse: the interest rate becomes unsatisfactory or "unprofitable"
after the rate of profit itself falls. The rate of profit, which rose slightly
early in 1929, began to fall as the crisis approached, and fell disas-
trously after the crisis. It fell disastrously because of the collapse of
demand, prices, and production, not because of the divergence between
the rate of profit and the rate of interest. The divergence was itself
an effect of the crisis and the fall in the rate of profit.

The monetary approach is responsible for another error. This is
Keynes' insistence that speculation contributed to the cyclical break-
down because "the 'speculative' borrowers were borrowing not for
investment in new productive enterprise, but in order to participate
in the feverish 'bull' movement," ^ thus increasing the deficiency in
investment. On the contrary, speculation contributed to postponement
of the crisis by encouraging the luxury industries and by preventing
an earlier overproduction of capital goods. Most speculative profits are
either re-employed in the market or are spent; the part which may
be invested in productive enterprises is smaller than the cash and
credit tied up in speculation. The "immobilization" of a part of super-
abundant capital by speculation performs the same function in keep-
ing prosperity going that is performed by destruction and deprecia-
tion of capital and waste in general. But while speculation aided
prosperity it simultaneously aggravated the instability of prosperity,
sharpened the crisis when it came, and deepened the depression.

Of the depression and recovery, Keynes writes: "Capital goods will
not be produced on a large scale unless the producers of such goods
are making a profit. Upon what do the profits of the producers of
capital goods depend? They depend upon whether the public prefers
to keep its savings liquid in the shape of money or the equivalent
or use them to buy capital goods or the equivalent. . . . The funda-
mental cause of the trouble is the lack of new enterprise due to an
unsatisfactory market for capital investment. Lenders were, and are,
asking higher terms for loans than new enterprise can afford."®

igo The Decline of American Capitalism

That is clearly an effect, however, not a cause. Where production and
consumption are prostrate, as in a major depression, any large in-
vestment in new capital goods may be unprofitable no matter how
low the interest rate. It might even be unprofitable if no interest were
asked but only safety. For an unusually severe depression is preceded
by an unusually large output of capital goods. There is an unusual
overdevelopment of plant equipment, and new investment is prac-
tically limited to unpostponable replacements, considerably more effi-
cient equipment which might yield competitive advantages to a
particular enterprise, and equipment to produce new goods which
meet no competition and whose market is assured. Depression is
finally overcome, and new investment again becomes profitable, pri-
marily by destruction and depreciation of existing capitals, the piling
up of unpostponable replacements, and the development of new in-
dustries, thus setting in motion a demand for capital goods and a rise
in the rate of profit. At this stage the rate of interest may become
an accelerating or retarding factor. But the fundamental factors are
the rate of profit itself and the capacity of industry to absorb an
increasing output of capital goods. So great was the overdevelopment
of productive enterprise in the United States that the government's
efforts to "ease" credit — through the loans, or rather grants, of the
Reconstruction Finance Corporation, and the pressure on industry
to borrow and on banks to lend — yielded slight results because indus-
try was tormented by overdevelopment of capacity and lack of markets,
not by lack of credit or capital.*

The admission by many bourgeois economists, among them Keynes,
that prosperity depends upon capital investment is correct. It is, how-
ever, one-sided because it excludes, wholly or in part, the factor of

* Keynes, "Causes of the World Depression," Forum, January, 1931, p. 24, sees
this overdevelopment of enterprise without appreciating its significance: "In the United
States the vast scale on vi^hich new capital enterprise has been undertaken in the last
five years has somewhat exhausted for the time being — at any rate so long as the
atmosphere of business depression continues — the profitable opportunities for further
enterprise." Where art thou now, O rate of interest! In Germany, in 1932, the govern-
ment of Chancellor Briining and the Reichsbank lowered interest rates to stimulate
industry. Failure was attributed to the fact that only short-time borrowing was affected.
But failure also marked the efforts of the government of Chancellor von Papen, which
tried to stimulate expenditures on capital goods by giving industry a practical subsidy
of 750 million marks at no interest (in the form of certificates discountable for cash
and acceptable some years later in payment of taxes). Enterprises receiving the money
used it to pay off debts, and there was no revival in the output of capital goods. Gerhard
Colm, "Why the 'Papen Plan' for Economic Recovery Failed," Social Research. February,
1934. P- 93-

The Onset of Crisis and Depression 191

consumption. Capitalist prosperity depends upon an increasing output
and absorption of capital goods. But this depends in final analysis
upon the capacity of industry profitably to dispose of an increasing
output of consumption goods. The constant clash of one with the
other is inescapable and decisive. Because he ignores this, Keynes
becomes entangled (much like the money cranks) in proposals for
monetary manipulations to revive and maintain prosperity. All such
proposals emphasize the secondary factors of exchange, not the pri-
mary factors of production. While exchange reacts upon production,
the relations of exchange are determined by the relations of pro-
duction. If exchange is emphasized the causes of cycles appear either
bewilderingly complex, where the economist is "scientific," or ex-
tremely simple, where the economist is "practical." In either case
effects are transformed into causes. Thus an effect, the deficiency
in investment, becomes with Keynes, who is both "scientific" and
"practical," the cause of cyclical breakdown. If it is proposed to prevent
crises or save capitalism, effects must become causes: for it is possible
to dnker only with effects, not with causes. Prosperity depends upon
capital investment. This means that capitalism is a profit economy.
No profit — no prosperity. This in turn creates an antagonism be-
tween production and consumption: capitalism is unable to develop
freely and fully the conditions of consumption. The conclusion is
inevitable : crises and depressions are inherent in the capitalist relations
of production, they can be avoided only by the abolition of those
relations. But this conclusion is either evaded or openly rejected by
the bourgeois economists. Even where the conclusion arises logically
out of their own analysis, if consistently pursued, they fly off at a
tangent and offer "cures" based on secondary factors. They prefer,
in theory and pracdce, to cling to capitahsm.

In every cycle, in prosperity, crisis, and depression, there are varying
combinations of the secondary factors. An analysis which emphasizes
these factors makes every cycle appear unique in itself. This is wrong.
For there are primary factors underlying and determining the cyclical
process. These factors are always the same. The secondary factors
may combine differently in the unstable equilibrium of capitalist
prosperity. But the primary factor is -the accumulation of capital, an
increasing output and absorpdon of capital goods. The secondary
factors may combine differently to produce the onset of crisis and
depression. But the primary factor is the deficiency in consumption.
The inescapable antagonism between production and consumption
is decisive.

192 The Decline of American Capitalism

Thus the conclusion becomes inescapable that capitalist production
is strangled by its own enormous productive forces, which arc de-
veloped beyond the social forces of consumption. When industry
tends to use all its forces, the result is overproduction and crisis.
Even then, however, only a part of the productive forces is utilized.
Yet this sort of thing is still taught in American colleges: "The one
great hope of mankind for greater abundance of goods lies in remov-
ing ineffectiveness of labor as a cause of scarcity, or, in other words,
in improving the methods of production." ® But labor is not ineffective.
The methods of production are improved. There is abundance. These
conditions are, however, transformed into causes of scarcity, both in
prosperity and depression. Capitalist industry is menaced by its power
to provide abundance — by the inexorable drive to produce more
cheaply and abundantly, by excess capacity, by overproduction. Abun-
dance creates scarcity because abundance becomes relatively unprofit-
able. Thus under capitalism, production appears as a malevolent fate:
man is enslaved and tormented by his own material creations.*

The productivity which torments capitalist industry — and the masses
— is a result of the objective socialization of production. Capital,
materials, and labor are concentrated in large-scale enterprises, forms
of social property, multiplying the productivity of labor. All the
powers of society work toward improving the social methods of
production. More and more, industry assumes institutional forms:
ownership is separated from management and control, the direction
of industry becomes collective. Only ownership and appropriation are
individual (although ownership itself acquires measurably social forms
in corporate enterprise). This contradiction is the basis of the an-
tagonism between production and consumption. The antagonism can
be ended only by the socialization of ownership, appropriation, and
consumption: by making consumption, not accumulation, the aim
of production. Man, the worker, must produce to consume.

* "Things cannot be otherwise in a mode of production where the worker exists to
promote the expansion of existing values, as contrasted with a mode of production
where weahh exists to promote the developmental needs of the worker. Just as, in the
sphere of religion, man is dominated by the creature of his own brain, so in the sphere
of capitalist production, he is dominated by the creature of his own hand." Marx,
Capital, V. I, p. 685.

CHAPTER XIII

Production and Consumption:
Capitalist Decline

JLf capitalist production and prosperity depend upon an increasing
output and absorption of capital goods, as Keynes and other bour-
geois economists admit, it follows that there are limits to the economic
development of capitalism, to the accumulation of capital.

These limits result periodically in crises and depressions. Cyclical
breakdowns express an overdevelopment of capital equipment, which
lessens the output and absorption of capital goods and checks the
expansion of industry. In the epoch of the upswing of capitalism the
limits were only relative, as overdevelopment of capital equipment
was relative and temporary. Depression, overcome by the action of
cyclical forces, was succeeded by a new upsurge of prosperity resulting
from new and larger demands for capital goods, because of the
working of the long-time factors of expansion. But as these factors
approach exhaustion, the overdevelopment of capital equipment be-
gins to assume absolute and permanent forms. Industry is now unable
to absorb an increasing output of capital goods: the limits to the
development of capitalist production and prosperity become absolute.

At the same time, and necessarily, the limits to the development
of consumption become absolute. An increase in consumption depends
upon a still larger increase in the output of capital goods. As this
output rose in the epoch of the upswing of capitalism, the limits
upon consumption were only relative. Overdevelopment of capital
equipment was accompanied and made possible by underdevelopment
of consumption, the final cause of crises and depressions; but there
was a rise in consumption. As, however, the capacity of industry to
absorb new capital goods begins to decrease, consumption must remain
stationary or fall : the limits to the development of capitalist production
and prosperity become absolute.

Thus the; movement of production and consumption brings about
a permanent crisis in production and prosperity. The crisis can be
solved only by intensive development of the social forces of consump-
tion. As, under capitalist conditions, however, increasing consumption

193

194 Th^ Decline of American Capitalism

is a by-product of an increasing output o£ capital goods, which now

tends to decrease, the crisis is insoluble. This is the decline of capitalism.

But why cannot capitalist production develop the forces of consump-
tion ? They can and must be developed, insist many bourgeois econo-
mists, whose discussion of the problem of consumption is growing.
Attention is forced upon this problem because the productive forces
are now so great, the antagonism between production and consump-
tion so apparent. Nor is this merely a result of the depression: con-
sumption was stressed in the pre-1929 mythology of prosperity. The
discussion of consumption, wherein two groups may be distinguished,
is wholly inadequate, as it is entangled in all the contradictory rela-
tions of production which make the problem insoluble under cap-
italism.

One group insists that the problem of consumption can be solved
if the monetary mechanism is manipulated to force prices to fall and
permit absorption of an increasing output of goods. Or if marketing,
including advertising, is made more efficient. Or if "consumer credit"
becomes as general as producer credit and "finances" consumption.
Or if distribution is "rationalized" by still greater growth of the
chain stores. These proposals may all be dismissed without much
consideration: they emphasize secondary factors of exchange and not
the primary factors of production and its relations. The proposals
would tend, moreover, to create more disproportions. Falling prices
are a source of instability, increase consumption only temporarily,
and threaten the rate of profit. "More efficient" marketing multiplies
overhead costs and the wastes of distribution. "Consumer credit"
is merely a disguised form of instalment selling. The chain stores
neither make distribution more rational nor increase mass purchasing
power and consumption: they create new disturbing factors, increase
unemployment in the distributive trades, and are associated with
monopolist abuses.

Another group insists that the problem of consumption can be
solved only through industry disbursing more mass purchasing power
to permit more consumption. Mass production must depend upon
mass consumption: only greater consumption can absorb the output
of the enormously productive forces of industry. This is an approach
to the real problem. But it ignores the crucial questions of how, under
capitalist conditions, consumption can increase while the output of
capital goods tends to decrease, and of what would happen to the
rate of profit and capitalism itself if the output of consumption goods
rises while the output of capital goods falls. The "consumption" econo-

Production and Consumption: Capitalist Decline 195

mists neglect the factor o£ capital goods, where Keynes and others
neglect the factor of consumption.

In one form or another the promise to "increase consumption"
appears in all the arguments of the apologists of state capitalism.
In Italy and Germany, in Britain and France, there is a mass of words
and acts "in favor" of greater mass consumption: meanwhile it tends
to remain stationary or fall. The National Industrial Recovery Act
proclaims its aim thus: "To increase the consumption of industrial
and agricultural products by increasing purchasing power." ^ What
all the words and acts mean in practice is a concern with markets
to absorb the output of industry and insure capitalist profits. This
involves, however, a fundamental economic problem, most clearly
formulated (among the apologists of Niraism) by Rexford Guy Tug-
well.^ His analysis is incomplete but it reveals the desperate straits
of capitalist production.

The older "era of development" of the productive forces has defi-
nitely come to an end, Tugwell maintains. Unrestrained competition,
while it formerly "may have been a useful economic creed," is now
"the final suicide compulsion which afflicts free industry. It throtdes
itself by closing off its access to markets." Economic development and
competition must decline.

This is both cause and effect of a new era in American capitalism:
"Our economic course has carried us from the era of economic de-
velopment to an era which confronts us with the necessity for economic
maintenance. In this period of maintenance there is no scarcity of
production. There is, in fact, a present capacity for more production
than is consumable, at least under a system which shortens purchasing
power while it is lengthening the capacity to produce."

In this "new era" the dominant problem is consumption. "More
and more conspicuous," Tugwell insists, "is the dependence of our
economic existence upon the purchasing power of the consumer —
upon wages, that is, and protected prices. . . . Only a socialized industry
can market its goods continuously because, until it is socialized, it
cannot join in the protection of demand. . . . This era of mainte-
nance, the era of our present and future existence . . . demands a
new control, a control designed to conserve and maintain our economic
existence."

The crucial point in Tugwell's argument is the contrasting of the
era of development with the era of maintenance. Or, in other words,
the epoch of the upswing of capitalism has been succeeded by the
epoch of its decline.

196 The Decline of American Capitalism

What was the "era of development"? It was the era when the
older industries were being mechanized, new industries arising, and
new regions conquered by industrialism. This meant an increasing
output and absorption of capital goods, an increasing accumulation of
capital. The curve of production was upward.

What is the "era of maintenance" .f' It is the era when the older
industries are all mechanized, scarcely any new industries are develop-
ing, and the industrialization of new regions is declining. The pro-
ductive forces are ample, highly efficient, capable of producing more
goods than the markets can absorb because consumption is limited
by the social relations of capitalist production. Only to "maintain,"
not to increase, the existing productive forces requires a tremendous
growth in mass consumption. Under these conditions the tendency
is to restrict new capital goods to replacements, to "maintenance"
of equipment. This means a decreasing output of capital goods, a
decreasing accumulation of capital. The curve of production is down-
ward.

The downward tendency of production is not something new. Its
first manifestation is a decrease in the average yearly rate of indus-
trial growth (7.6% in 1902-06, 4.6% in 1909-14 and 3.8% in 1922-29).
The decrease was relative, a flattening of the upward movement.
Yet that in itself is ominous, as capitalism must expand or decline:
it cannot stand still. Moreover, it is significant that the flattening
took place when there was an increasing output of capital goods,
particularly in 1922-29. If the output tends to decrease, the downward
movement of production must become absolute. And this develop-
ment, as well as the economic decline with which it is identified,
is inherent in the dynamics of capitalist production. . . .

While Tugwell distinguishes the two epochs of capitalism, he does
not recognize the implications. It is, of course, a problem of con-
sumption. The barriers of capitalist production can be broken down
only by an upsurge of mass consumption. But the barriers are created
by capitalist production itself, which always restricts consumption. The
problem is now more acute, as the formerly relative limits imposed
upon the development of consumption (and production) tend to
become absolute, because of the decreasing output of capital goods.
Thus, instead of making possible greater mass consumption and eco-
nomic stability, the "era of maintenance" creates new disturbances and
engenders a state of permanent crisis. Tugwell ignores the funda-
mental problem: How, under capitalism, can consumption rise while
there is a jail in the output and absorption of capital goods?

Production and Consumption: Capitalist Decline 197

The basic nature of this problem appears clearly in a concrete
analysis of the relation of the production of capital goods to prosperity
and depression (Table V). This relation is the controlling factor in
all stages of capitalist production. It conditions both the upswing of
capitalism and its decline.

TABLE V

Output of Capital Goods

in Prosperity and

Depression, i^ig-

-31

output

wage-

WAGES

(millions)

workers

(millic

ms)

1929

1931

1929

1931

1929

1931

manufactures:

Machinery

$6,170

$2,800

975,000

595.000

$1,460

$690

Iron and Steel

5,000

2,290

615,000

420,000

965

490

Other Metal

2,500

1,000

220,000

145,000

300

165

Transport Equipment

2,280

1,100

435,000

305,000

695

415

Stone, Clay, Glass

1.155

520

220,000

115,000

300

145

Lumber Products

895

415

220,000

130,000

235

no

Total

$18,000

$8,125

2,685,000 ]

[,710,000

$3,955

$2,015

Percentage of All

Manufactures:

25.6

ig.6

30.4

26.3

33-9

27.9

OTHER industries:

Construction

$6,190

$3,490

1,450,000

*

$2,400

*

Mining Products t

1,470

795

300,000

*

375

*

* Not available.

t Includes quarries and oil wells.

Estimates include: all machinery except mechanical refrigerators, sewing machines,
washing machines, incandescent lamps, radio, household electrical appliances; 70% of
iron and steel; 70% of non-ferrous metals and their products; 20% of automobiles,
50% of value output of railroad repair shops, all other transportation equipment; all
stone products, 50% of clay and glass; 25% of forest products; all construction; 25% of
mining products (used as structural materials in capital goods or as power fuels in their
production). Estimates are approximate, but with minima stressed.

Source: Computed from material in Census of Manufactures, 1929 and the Census
preliminary reports for 1931; Commerce Yearbook., 1932, v. I, p. 262; Statistical Ab-
stract, 1932, pp. 686-87; W. I. King, National Income and Its Purchasing Power,
pp. 56, 108, 132, 138.

In 1929, the gross value output of capital goods industries was
$18,000 million, br 25.6% of all manufactures. These figures contain
a considerable amount of duplication, representing the value of mate-
rials. But there are no duplications in the final form of capital goods,
in machinery and transportation equipment, whose value was $8,450
million. Add $4,190 million as the probable unduplicated value of

198 The Decline of American Capitalism

construction. That makes approximately 112,640 million, an output
of capital goods equal to nearly 25% of the net value ($51,290 million)
of non-agricultural goods produced in the United States in 1929.*

In their various stages the manufacture of capital goods employed
2,685,000 workers and paid out $3,955 million in wages, or 30.4%
of all workers and 33.9% of all wages in 'manufactures. (There are
no duplications in these figures.) Including construction and mining,
the production of capital goods and their materials employed 4,435,000
workers, who received $6,730 million in wages. Another 450,000
workers and $700 million in wages must be added on the assumption
that one-quarter of transportation is occupied in moving capital goods
and their materials. Thus in 1929 the production of capital goods
employed 4,885,000 workers, 31.5% of industrial workers and 17.5%
of all workers, and paid out $7,430 million in wages, 40% of industrial
wages and 22.8% of all wages.f This is exclusive of probably 750,000
clerical workers receiving $1,125 million in salaries who were similarly
employed. It is also exclusive of the millions of workers in the con-
sumption goods industries, the distributive trades, and professional
occupations who are dependent upon the demand and purchasing
power of capital goods workers.

The figures of output, employment, and wages clearly reveal the
direct economic significance of capital goods. They have a still greater
significance in the relations of capitalist production as a whole.

The output of capital goods is a fundamental factor in accumu-
lation. It permits the conversion of profits into capital. Capital is a
social relation, the private ownership of the means of production,
which gives the capitalist owners the power to exploit the workers
and secure an income. The workers are exploited by providing them
with the instruments of labor, with capital goods. If the output of
capital goods slows down, it means a decrease in the mass of workers
exploited by the capitalist class and a consequent lowering of its income
and wealth.

The two departments of industry, one producing capital goods, in-

*In 1929 the net value of manufactures, less $13,300 million of duplicated materials,
was $47,100 million. The net value of construction, less a probable $2,000 million
of materials supplied bj' manufactures and mining, v^^as $4,190 million. Thus the net
value of non-agricultural goods produced was approximately $51,290.

t The sharp difference in the percentage of workers and of wages is explained by
the fact that there are millions of hired farm laborers, servants, and other groups who
receive unusually low wages. In 1929, the average yearly wage for workers employed
in the production of capital goods and their materials was approximately $1,500; it was
only $1,180 for the workers as a whole.

Production and Consumption: Capitalist Decline 199

eluding materials, and the other producing consumption goods, are
interdependent. The first supplies the means of production which the
second uses to produce means of consumption. Capitalists in the
consumption goods industries convert their unconsumcd profits into
capital by investing them in capital goods to produce more consump-
tion goods. (Some of them may invest a part of their profits in
capital goods to produce more capital goods, while some of the
capitalists in the capital goods industries may invest a part of their
profits in capital goods to produce consumption goods.) Profits flow
from the department producing consumption goods to the department
producing capital goods and return in the form of "concrete" capital,
of capital goods to produce more profits. From the standpoint of the
individual capitalists in the two departments, only that part of their
workers' output is surplus value or surplus product which represents
unpaid labor. But from the standpoint of capitaUst production and
the capitalist class as a whole, all the output of workers producing
capital goods is in a sense "surplus product," because the part which
represents paid labor (wages) is paid for with the output of the
unpaid labor (surplus means of subsistence) of workers producing
consumption goods. Upon this fundamental relation is based the
whole economic superstructure. If there were no output of capital
goods their producers, of course, would make no profits. Still more
serious, there would be no accumulation; the profits of capitalists
in the consumption goods industries would have to be consumed or
put into non-productive investments, becoming a burden upon indus-
try and profits.

As long as the relation between the two departments of industry
is undisturbed, production is on the upswing and prosperity prevails.
There is an active accumulation of capital, the conversion of sur-
plus value, of profit, into capital by means of an increasing output
and absorption of capital goods.

But the process of accumulation simultaneously depends upon
consumption and limits its development. If consumption is not in-
creasing, the demand for capital goods must eventually fall. And
accumulation tends to restrict mass purchasing power and consump-
tion. The antagonism is overcome, for a time, and in spite of the
lag of wages behind profits, because the production of capital goods
sustains consumption by creating consumer purchasing power. Un-
like industries producing consumption goods, the capital goods indus-
tries offer nothing for sale to consumers: their customers are capitalists,

200 The Decline of American Capitalism

who buy and pay with profits. They make no direct demands upon

the consumer purchasing power created by them.

Eventually, of course, most capital goods offer consumption goods
or services for sale. But this is only eventually and conditionally true.

The greater part of construction, public works and industrial build-
ings, never offers any competition to the producers and sellers of
consumption goods. Only a small part of construction, private dwell-
ings, is offered for sale to consumers; another part, apartments, offers
services. Transportation and electric power equipment also offer serv-
ices eventually (part of their output, however, is absorbed by in-
dustry). But in all these cases the capital investment is heavy, and
many years elapse before full demands are made upon consumers.

Only one form of capital goods, industrial machinery, throws its
output upon the market for direct sale to consumers. This, however,
is done gradually. For a time the new industrial machinery put into
operation is offset by the production of other machinery, provided
orders increase more than output.

The production of capital goods, which do not throw their output
upon the market or do so only eventually, creates consumer purchasing
power in the form of wages and clerical salaries (and part of other
salaries and profits). Of this purchasing power, amounting in 1929
to $8,550 million, not one penny is spent on the output of capital
goods industries. All of the wages and clerical salaries, except minor
savings and expenditures on services, is spent on the output of con-
sumption goods industries. These industries, of course, create pur-
chasing power of their own. But of this an important part represents
the wages of workers producing consumption goods which are con-
sumed by the workers who produce capital goods. If the output of
capital goods falls, the workers thrown out of work lessen or cease
their demands for consumption goods. The result is a decrease in
the output of consumption goods and an increase in unemployment
among the workers whose output was bought and consumed by the
workers who formerly were engaged in the production of capital
goods. This is not all. As the newly unemployed consumption goods
workers lessen or cease their demands, there is another decrease in
output and more unemployment in the consumption goods industries.
Total consumer purchasing power drops much more than the mere
drop in the purchasing power of capital goods workers. The rela-
tion between the two departments of industry must be adjusted on
a lower level of general production. (Necessarily there is a fall also
in the demand for services, including professional services.)

El

tt « j:

1

> i.^

1

£ Z,-^

1

< ^'i t

I

t:IJ^ ii

1

■a. " JS

1.

*^ XI rt >,

1

U _ -S JQ

1

U; 2 ^Ji

I

O a; w -Q

I

ATIO

ccomc
tible ir
consu

1

MUL
lue, b
onvcr
roduci

l\

D > "^ a*

'*.1

U « 3 3

^

y 1

^•e-t I

E

z

w 3 S 2

>:»

i

TH

lized s
rofits
ted to

■5.
S

S Q.£

•o

W U i/>

«

o -t: —

J

u: . 2

5

o ^ Q.

^H

"8

&0 n

o.

« ja •» T3

£ S .2 te

o o w ci-

O so Q. .

^ c E c
J w .9- 3 .2

< 3 S. C ^

H-g E 8 I

fi 1? 8 - ^

Zi t: o.H

< °-^ - «

ro = — ■£ 3

^ g 2 > o

CO ? D. I «>

Oi o « > 'S,

' •■S m '^' JZ C

Q. 3 o -t; c

C8 _= &0 i=

O Q. CJ C ,

l!-:H

202 The Decline of American Capitalism

The fundamental nature of this relation appears clearly if we assume
that there is no output of capital goods and that the industries pro-
ducing consumption goods must depend exclusively upon the pur-
chasing power they create. In this case their output, other than the
part consumed by the capitalists, managerial employees, and non-
workers generally, must be bought and consumed by the workers
producing the consumption goods. This requires either a great rise
in wages or a great fall in prices. Profits are limited to what the
capitaUst class can consume. There are no real profits and no con-
version of these profits into capital because they depend upon that
part of consumption goods consumed by the workers producing capital
goods.

Thus the production of capital goods, with its creation of consumer
purchasing power, sustains consumption and makes its increase pos-
sible. But only as long as an increasing output and absorption of
capital goods creates new purchasing power greater than the sum
of prices of the additional consumption goods thrown upon the mar\et
by newly producing capital goods.

The temporary equilibrium is eventually upset by an overproduction
of both capital goods and consumption goods. Cyclical limits arise
to check the further expansion of production. There is crisis, break-
down, and depression.

The crisis initially may be engendered by a restriction of the pro-
duction of capital goods or of consumption goods, or of both simul-
taneously. But basically it is a crisis in capital goods, the demand
for which falls because the consumption goods industries are over-
equipped in terms of available consumer purchasing power. For, in
spite of the purchasing power distributed by the capital goods in-
dustries, the lag of wages behind profits creates a deficiency in con-
sumption. This makes it impossible to sell the mounting mass of
products thrown upon the market by the consumption goods indus-
tries, whose productive powers have been greatly augmented by
newly producing capital goods. As the crisis develops the output of
capital goods falls much more than the output of consumption goods,
the depth of the fall measuring the depth of the depression. In 1931,
the output of capital goods (in manufactures) was 54.9% lower than
in 1929, the output of consumption goods only 36.6% lower; employ-
ment among capital goods workers was 36.3% lower and their wages
49.1% lower, and only 21.9% and 32.6% lower among consump-

Production and Consumption: Capitalist Decline 203

tion goods workers.* While the proportional fall of wages in the
capital goods industries was greater, the absolute fall was greater
in the consumption goods industries — $1,940 million compared with
$2,520 million. Theoretically the decrease in both employment and
wages in the consumption goods industries should be larger; this does
not happen because unemployed capital goods workers (and others)
maintain a limited consumer demand by means of savings, loans,
and charity. By 1932 the output of all forms of capital goods was
75% lower than in 1929; in addition, the output of durable consump-
tion goods was 75% lower and of non-durable consumption goods
30% lower.^

Depression persists as long as there is a shrinkage in the consumer
purchasing power of workers in the capital goods industries, which
creates a still larger absolute shrinkage in the purchasing power of
workers in the consumption goods industries, the distributive trades,
and professional occupations. A renewed demand for capital goods
is necessary to stimulate cyclical revival. While it throws no consump-
tion goods upon the market, an increase in the output of capital
goods creates purchasing power among the workers re-employed to
produce them, and invigorates consumer buying. The renewed demand
for capital goods usually starts with orders for replacements of equip-
ment, eventually no longer postponable, or with orders for more
efficient equipment to save labor costs, or with equipment required
by a new industry. Production begins to revive.

If the demand for capital goods is sufficiently large, and if the
resulting revival is accompanied by an increasing output and absorp-
tion of capital goods, the revival moves onward to recovery and
prosperity.

If, however, the demand for capital goods is insufficient and does
not increase, because of considerable overequipment in the older con-
sumption goods industries and the failure of new industries to develop
— in other words, because of exhaustion of the long-time factors of
expansion — there can be no complete recovery and no upsurge of
prosperity.

The demand for capital goods must consist of more than mere
replacements. It must be an increasing demand. Otherwise recovery
and prosperity will be limited. An increasing demand for capital
goods depends upon the expansion of older industries and the develop-

* In both departments of industry, wages decreased more than employment because
of reductions in wage rates and the resort to the "stagger" system or part-time work.
Both are methods of throwing the burdens of depression upon the workers.

204 The Decline of American Capitalism

ment of new industries. But the older industries are enormously
overequipped and no new industries are developing. Hence industry
lacks, and will continue to lack, the stimulus of a vigorous demand
for capital goods. This explains the depth and duration of the depres-
sion. More important, it explains why capitalism is now in an "era
of maintenance," why it becomes impossible to restore prosperity
on any considerable scale.*

The "era of maintenance" means that industry is no longer able
to absorb an increasing output of capital goods. And this means that
the conditions of depression — on a somewhat higher level, however —
will be the conditions of prosperity. Employment and consumer pur-
chasing power are restricted among capital goods workers (even if
the output of capital goods is merely constant, because of improving
technological efficiency and the coming of new workers into the
labor market). The result is unemployment and restriction of pur-
chasing power among consumption goods workers, and among the
workers in clerical, distributive, and professional occupations. The
general level of production must fall, resulting in a "depressed" pros-
perity. Permanent and absolute Hmits arise to the development of
capitalist production. The resulting economic decline persists, as in
the case of depression, as long as there is no upward movement in
the output and absorption of capital goods.

Why not stimulate the output of capital goods? But this cannot
be done if the consumption goods industries are overequipped, if
no new industries arise, if the long-time factors of expansion are
exhausted. The NRA's efforts artificially to stimulate the output of cap-
ital goods have been largely unsuccessful. Similar efforts in Germany,
on a much greater scale, merely intensified the economic crisis. Nor
are public works a substitute for profit-yielding capital goods. They
are not an accumulation of capital. They must be paid for with public
money; and whether this is done by means of loans or taxation, it
imposes a burden upon industry, profits, and wages (particularly
wages). There may be an increase in the export of goods and of
capital, which results in capital accumulation. But the scope of this
is limited, under the conditions of the world to-day, and it means
imperialism.

Why not stimulate consumption? This is the obvious solution.
The productive forces are highly developed. Their mere use means
the abolition of unemployment and poverty. But the question is not

* This is discussed more fully in Chapter XXIII, "Prosperity and Capitalist Decline."

Production and Consumption: Capitalist Decline 205

whether an increase in consumption is possible and would result
in permanent industrial revival. It is and it would. The question
is whether capitalism can and will promote an increase in consump-
tion which interferes with the ma\ing of profits. This the apologists
of Niraism ignore, or they insist that higher profits and higher con-
sumption are not mutually exclusive. In other words, they believe
that the problem can be solved within the limits o£ capitalist relations.
Thus William Green, president, American Federation of Labor, says:
"Refusal to share gains with producing workers dries up the sources
of larger income for industry. There are two main channels through
which workers share in the prosperity and progress of an industry:
a shorter work week and higher wages as measured by buying power.
... If workers could buy all they need and want, industries could
be earning more, wages and dividends would rise. . . . Our power to
produce is practically unlimited so far as the mechanics of production
go. The controlling limit is the ability of consumers to buy. Here
we run into a difficulty created by our failure to realize the inter-
dependence between production and retail buying. Not only have we
failed to do industry-wide and nation-wide planning for our business
institutions, but the individual employer has failed to realize that
the wages paid his employees constitute part of the retail market
upon which his business depends. . . . Unless a much larger propor-
tion of the returns on products goes to wage and salary workers there
will not be the market for the increased output." *

That is exactly what William Green was preaching in the pre-1929
"Golden Age," when he insisted that "high wages" was the accepted
policy of American employers. It did not work then. How can it
work now? Employers would not reject shorter hours and higher
wages if they really meant higher profits. In the epoch of the up-
swing of capitalism shorter hours and higher wages were, within
limits, compatible with higher profits because of the increasing out-
put and absorption of capital goods. That condition does not exist
in the "era of maintenance." Nor is Green's theory unworkable only
if there is no national planning. For planning must proceed within
the orbit of capitalist production, whose "controlling limit" is not
"the ability of the consumer to buy," but the making of profits and
their realization as capital by means of an increasing output of capital
goods, an increasing accumulation of capital.

If there is a definite downward tendency in the output of capital
goods, three conditions are necessary to insure an increase in mass
consumption :

2o6 The Decline of American Capitalism

Workers unemployable in the production of capital goods must
secure employment in the industries producing consumption goods.

To absorb these workers (and other unemployed workers) the
hours of labor must be considerably shortened.

And the wages or consumer purchasing power of these and all
other workers must rise substantially in order to absorb the augmented
output of consumption goods.

Upon these fundamental adjustments depends an increase in em-
ployment, income, and consumption among workers and professionals
engaged in the production of services.

The three conditions are, of course, economically realizable. But
not under the relations of capitalist production, as they would tend
to force the rate of profit down to zero. (Nevertheless, the workers
must fight for shorter hours and higher wages, whatever the effect
upon profits. For the workers must resist the capitalist efforts to
impose upon them the burdens of decline. But as any really shorter
hours and higher wages threaten the existence of profit, the capitalists
will not yield and the workers must broaden their action: the issue
becomes one of saving capitalism or of overthrowing it. In this situa-
tion the real interests of the farmers and professionals are identified
with the struggle of the workers. Only an increasing mass purchas-
ing power can create an effective demand for agricultural products
and for services, particularly of the more poorly paid professionals;
and only socialism can release the productive forces to serve all man-
kind.)

How is the rate of profit threatened by adoption of the three con-
ditions to absorb the unemployed and increase mass consumption.?
That part of the output of consumption goods workers which was
formerly consumed by capital goods workers must now be consumed,
through higher wages, by workers who produce consumption goods.
Every capitalist appropriates surplus value. This becomes capital, how-
ever, only in the form of capital goods. The output of workers
producing consumption goods is all consumed. It is consumed by
themselves, by workers producing capital goods, and by other classes,
including capitalists. The output of workers producing capital goods
is not consumed. It becomes concrete capital, capable of producing
more profit. Or consider the matter in terms of wages: The wages of
workers producing consumption goods are spent on buying part of
their own output, which is consumed. The wages of workers pro-
ducing capital goods are not spent on their own output, but on con-
sumption goods. All their output becomes income-yielding wealth.

Production and Consumption: Capitalist Decline 207

Thus the wages and consumption o£ other than capital goods workers
are, from the angle of capitalist production as a whole, sheer, if neces-
sary, waste. The surplus product or profit appropriated by the capitalist
class must decrease in the measure that workers producing consump-
tion goods consume more of their product. This is inevitable if unem-
ployed capital goods workers are absorbed in the production of con-
sumption goods. They now consume their own product instead of
the surplus product of other workers, formerly appropriated by the
capitalists and converted into capital. And their consumption now
produces no compensation in the form of capital goods. The situation
becomes clear under the assumed condition of no output of capital
goods: surplus product or profit would practically disappear except
for capitalist consumption of necessaries and luxuries. (Hence the
production of luxuries tends to increase in the epoch of the decline of
capitalism.)

Under these conditions, and from a capitalist angle, the only way
out is an intensification of the export of capital and imperialism. For
then an increase in production and employment does not depend upon
an increase in wages and mass consumption which results in no ac-
cumulation of capital. The additional output (both consumption goods
and capital goods) is exported and payment received in the form of
foreign investments, or capital claims upon foreign labor, production,
and income. Thus the export of capital is a capitalization of the labor
of workers who otherwise would be unemployed ; or who, if employed,
would merely produce goods for their own consumption, and thereby
threaten profits. . . .

How much chance is there, then, of an increase in mass consump-
tion.? Even in the epoch of the upswing of capitalism, and of an
increasing output and absorption of capital goods, there were periods
when mass consumption was merely stationary or fell, although it
tended in general to rise. In the epoch of the decline of capitalism,
mass consumption must fall because of the decrease in the output and
absorption of capital goods.''^ For an increase in mass consumption,

•Would not more consumption mean more demand for capital goods? Only within
limits, as the productive powers of industry are already highly developed. It would not
compensate for the shorter hours necessary to absorb the unemployed in the production
of consumption goods and for the higher wages necessary to .absorb the output. Sub-
stantial and profitable demands for capital goods depend upon the development of new
industries and the industrialization of new regions. The solution is possible under
socialism: increase the output of "capital goods" in the form of finer homes and schools,
shorten hours and raise "wages," increase mass consumption and leisure.

2o8 The Decline of American Capitalism

involving shorter hours and higher wages, simultaneously with a de-
crease in the output of capital goods, would not only disastrously lower
the rate of profit but tend to abolish profit altogether. Capitalists are
not going to raise wages and shorten hours merely to sell more goods
to workers on which they make no profit, particularly as this tends
to abolish profit if done on a sufficiently large scale. It is more advan-
tageous to depress the level o£ production, to restrict it within profitable
limits, however small. This means millions of unemployed and lower
mass standards of living: but that is of secondary importance in a profit
economy. The problem is thus one of the abolition of capitalism, not
of reconciliation and collaboration. . . .

Capitalism has always restricted production — ^by its underdevelop-
ment of the forces of consumption, by the restrictive practices of
monopolist combinations, by the decHne of production in depressions.
In 1928—29, years of unprecedented prosperity, many industries were
producing from 25% to 75% below capacity. Yet there was overpro-
duction. And in the pre-1929 years of prosperity the efforts to "con-
trol" production and prices resulted in the organization of "trade
institutes," intended to adjust output to demand. "Organized with
the approval of the Federal Trade Commission, they desire to do
within the law what the law expressly forbids, and profess to avoid the
charge of illegality which wrecked the open-price associations."®
Restriction of production was justified on the plea that it meant
avoidance of overproduction and depression. Demand is not, however,
restricted by lack of wants but by lack of purchasing power to satisfy
them. Overproduction was not the result of misjudging demand, but
of the whole movement of production and consumption. If output had
been adjusted to demand, on the basis of stifling wants instead of
satisfying them, it would have lowered employment, wages, and
consumer purchasing power and upset the very economic equilibrium
it was intended to maintain — exactly what happened in 1929-30.

Where, however, the restriction of production was formerly only
relative, it tends to become absolute in the epoch of the decline of
capitalism. This expresses itself both in objective developments and
in deliberate policy. Capitalism rebels against its historical function,
the development of production. Where once it offered economic prog-
ress, it now offers economic stagnation.

Since the World War, large-scale efforts have been made to restrict
the output of agricultural commodities, particularly wheat, cotton,
rubber, sugar, and coffee. . . . Brazil "controls" coffee production,
burns the "surplus" crop, and spends $1,000,000 advertising in Amer-

Production and Consumption: Capitalist Decline 209

ican newspapers — to increase consumption! . . . International cartels
"regulate" the output of minerals. . . . France and England limit
production in one form or another. . . . Fascist Italy restricts con-
sumption (and production) because of its unfavorable trade balance:
exports must go up, imports down. . . . Fascist Germany increases
the power of cartels to "fix" production downward and prices upward,
while "excess production" in agriculture is made legally punishable:
output must be limited to "what the German economic body is able
to consume" — on the basis of the prevailing mass starvation! . . .
Fascism everywhere magnifies the tendency toward economic national-
ism and "autarchy," which necessarily means a decrease in production
and consumption. . . . General Eoin O'Duffy, leader of the Irish
Fascists, says: "The revival of Irish industry is my first aim. My idea
is not heavy industries but hand industries which would have a
double advantage for us: they would enable us to find work for our
people and also to keep them on the land instead of encouraging them
to herd in towns."® . . . These are manifestations of deliberate revolt
against the productive forces of modern industry and their capacity
to liberate mankind from want.

Niraism also tends to restrict production. The policy of restriction
appears most clearly in the program of the Agricultural Adjustment
Administration, which destroys "surplus" crops and offers the farmers
inducements to reduce output. It appears also in the program of the
National Recovery Administration. And the policy is impHcit in the
National Industrial Recovery Act itself: "To avoid undue restriction
of production (except as may be temporarily required.)"^ The "tem-
porarily" is interpreted in their own fashion by capitalist interests:

"The methods which many business groups are proposing for curing
the depression all come down to one essential — produce less and col-
lect more. Rule out new capacity or improved methods; restrict the
output of present plants; eliminate price-cutting and other cruel
devices of unrestricted competition; base prices on the high cost of
producing little; produce only as much as can be sold at cost — these
are typical of the suggestions which appear over and over again." ®

In agreement is the president of the Building Trades Council of the
American Federation of Labor, who, in advocating control of industrial
production and the allocation of quotas, says:

"We should go the whole length necessary to complete recovery as
soon as possible, or, in other words, to adopt in manufacturing, min-
ing and construction the same direct, comprehensive policies that are

210 The Decline of American Capitalism

being put into effect by the Agricultural Adjustment Administra-
tion." «

In accord with its state capitalist nature, the NRA creates an ap-
paratus and policy for the deliberate restriction of production — dis-
guised as "controlled production." Practices formerly illegal are now
sanctioned by the government: the National Industrial Recovery Act
categorically suspended the anti-trust laws. Trustification of industry is
encouraged, and trade associations are practically given the powers of
cartels to "regulate" production and prices. The "fair" competition
prescribed in the codes means higher prices and profits and lower
output. Prices are fixed to insure "fair" profits, although lower prices
and profits might induce more consumption, production, and employ-
ment. The NRA enormously enlarges the scale of monopoly conditions
and practices, and monopoly tends toward the restriction of production.

Yet the avowed aim of the National Industrial Recovery Act is "to
increase the consumption of industrial and agricultural products by
increasing purchasing power"! ^^ This is merely one of the contradic-
tions of Niraism, of state capitalism, which professes to increase
simultaneously consumption and prices, wages and profits, employ-
ment and technological efficiency.

Consumption must necessarily fall in the epoch of the decline of
capitalism because of the permanent economic crisis, unmistakably
evident in the policy of restricting production. The necessity is accepted
and rationalized by fascism. Thus an American fascist says: "Coun-
tries with a less abundant supply of natural wealth and capital will be
compelled to introduce a restricted consumption system of one sort
or another — ^possibly by the strict regulation of wages and price levels."
To make the Fascist medicine more palatable he excepts the United
States, "whose productive capacity is already great enough to guaran-
tee a more than adequate standard of Hfe for the entire population." ^^
But American capitalism is not using and cannot use, without danger,
its "productive capacity, already great enough to guarantee a more
than adequate standard of life." The great productivity of industry
itself creates the conditions which result in decreasing consumption.
And who will consume less ? Not the capitalists, the upper bourgeoisie.
Those who will consume less are the workers and farmers, the lower
bourgeoisie, the unemployed or poorly paid professionals. In the epoch
of the upswing of capitalism the workers' consumption decreased only
relatively; now capitalism, in the epoch of its decline, forces an abso-
lute decrease in consumption upon the workers. Mass standards of

Production and Consumption: Capitalist Decline 211

living must fall precisely when industry is capable of raising them to
unheard-of heights. . . .

The policy of restricting production (and consumption) includes
"fixing" prices and "insuring" profits. These measures are not always
successful; or, if successful, create new disturbing conditions.

Efforts to restrict, on a world scale, the output of agricultural com-
modities (sugar, coffee, rubber) resulted in temporarily higher prices;
but this encouraged new competitive plantings and more output, and
the "control" schemes broke down. Prices are raised by the American
farmers' reduction of acreage and crops; the government wastes mil-
lions of public money to "compensate" the farmers, whose critical
situation becomes worse; and, unless the policy is temporary, experience
shows that the restriction schemes will fail.

The efforts to restrict industrial production go hand in hand with
efforts to increase it. This contradiction reflects a more fundamental
one: the conditions of decline force capitalist industry to restrict
production. But the restriction of production, whether or not it is a
result of deliberate policy, threatens the foundations of capitalism, as
large-scale industry depends upon increasing output. Restriction is
profitable only when practiced by a limited number of industries or
enterprises; when all of them restrict output, they strangle each other
and industry itself.

If production is restricted, larger profit margins become necessary
on the smaller output. The result is higher prices and lower demand.
Or improved technological efficiency and more unemployment. "The
NRA wants business to buy new machinery, modernize its plants, and
compete through increased efficiency in producing low-cost prod-
ucts." ^^ Or a combination of both. And consumption tends to fall.

If prices are fixed, they will usually be fixed upward. But if prices
rise while output falls, increasing unemployment and decreasing
wages, demand and consumption must fall.

If prices are not fixed but are left, under the conditions of decline,
to find their own level, bankruptcy and the depreciation of capitals
will develop on an unprecedented scale because of unprofitable prices
and intensified competition.

If industry is assured "fair" profits by means of "fair competition"
and an upward fixing of prices, survival becomes .easier, and bank-
ruptcy and the depreciation of capitals will tend to diminish. The
drive to improve technological efficiency loses much of its force and
lessens the demand for capital goods. Surplus capital will increase,
seeking investment anywhere, anyhow, strengthening competitive

212 The Decline of American Capitalism

pressures. Eventually the "balance" o£ fixed prices and profits is upset,
and both fall disastrously.

If competition is limited within an industry, it will intensify the
competition of increasing technological efficiency and the competition
of industry against industry. Dam competition here, it overflows there.

Thus "controls," particularly in the epoch of decline, do not abolish
the contradictions and antagonisms of capitalist production, but ag-
gravate them. Nor do they abolish overproduction, which is a relative
condition. On a lower level of economic activity, wages will still lag
behind profits and consumption behind production. There will still
be cyclical crises and breakdowns. These disasters were not averted in
the highly cartellized and "controlled" industry of Germany. Whether
industry is "free" or under "controls," whether prices rise or fall,* or
capitalism is on the upswing or downswing, there is still that alternat-
ing expansion and contraction in the output of capital goods which
determines the cycle of prosperity and depression.

The deliberate policy of restriction is not the major factor tending
to drive production downward in the epoch of the decline of capital-
ism. That is determined primarily by the forces of decline itself, by
the inability of industry to absorb an increasing output of capital
goods. The lower level of production is the outcome of efforts to avert
the disastrous fall in the rate of profit which would ensue if mass
consumption rose simultaneously with a decrease in the output of
capital goods. But on the lower level of production the rate of profit
still tends to fall disastrously. For all the contradictions pressing
down the rate of profit in the epoch of the upswing of capitalism
must necessarily work with greater force in the epoch of decline.

While production tends to lower levels, there will be no reversion to
small-scale industry (one of the demagogic promises of fascism).!

* "Steadying industry by steadying prices . . . may, of course, simply mean steadying
dividends without regard to output. . . . Under perfectly steady prices there would still
be great booms and depressions in the capital-making industries, and resulting booms
and depressions in industry at large." J. M. Clark, The Economics of Overhead Costs
(1924) pp. 404-06.

t The German fascists made far-sweeping and categorical promises to help the
"small man," the small producer. A dispatch to the New York Times, December 24,
I933> says: "The policy in industry is ambiguous. Cartel combinations have been
favored, even enforced, in the interest of big industry, but, simultaneously, numerous
small measures have been taken to encourage petty undertakings and hand workers."
Thus the promises are completely repudiated, for the measures "to encourage petty
undertakings and hand workers" are unimportant, in the nature partly of demagogy
and partly of "relief." A similar situation prevails in Fascist Italy. The basis of modern
industry is large-scale production.

Production and Consumption: Capitalist Decline 213

On the contrary, larger masses of fixed capital will be required because
of the desperate endeavors to raise profits by lowering costs. There
will be an augmenting of the higher composition of capital, variable
capital (wages) decreasing in favor of constant capital (equipment
and materials). The fixed portion of constant capital particularly will
increase because the downward tendency of production limits the
demand for raw materials. Under the conditions of decline, changes
in the composition of capital may not be as great, in an absolute sense,
as in the past, but they will be greater relatively to the lower level of
production. And on this lower level, the contradictions and antagonisms
set in motion by the higher composition of capital become more acute
and devastating.

In the epoch of economic upswing, and increasing production, vari-
able capital fell only relatively to constant capital : there was an absolute
rise in employment and wages (and mass consumption). In the epoch
of decline, and economic stagnation, variable capital tends to fall
absolutely, and this means a decrease in employment, wages, and
mass consumption. While consumption falls, the capacity of in-
dustry rises, the more so as technological progress makes new ma-
chinery much more efficient than the old. The problem of excess
capacity is enormously aggravated. Overhead costs become greater as
output fails, more than formerly, to grow sufficiently. Each unit of
product requires a constantly larger capital investment. Excess capacity
becomes worse if "controls" assure "fair" profits and make survival
easier, or if prices are fixed upward and demand and consumption
are thereby lessened. High profits create more disturbances because
of the downward tendency of production.* While the conditions of
decline mean a considerable destruction of capital and depreciation of
capital values, the problem of surplus capital becomes more acute be-
cause of the lower level of production and the narrowing of invest-
ment opportunities. Surplus capital is still more abundant if "controls"
assure "fair" profits and prevent destruction and depreciation of
capitals. In both cases an increase in excess capacity occurs. The pro-
ductive forces become so great that their full utilization is unprofit-

• "There is possibly a permanent slackening of the rate of increase of needed new
investment which, by requiring smaller savings, will make larger profits a more dis-
turbing problem in the future. . . . We shall not need such a large increase of invest-
ment." Ralph E, Flanders, "The Economics of Machine Production," Mechanical En-
gineering, September, 1932, p. 608. Proportions arc decisive in this connection. Profits
are proportionately higher where, on a lower level of production, their ratio to "needed"
investment is as 5 to 3 than where, on a higher level of production, the ratio is 10 to 9.

214 The Decline of American Capitalism

able; yet production is unprofitable if capacity is not fully utilized.
The rate of profit tends to fall disastrously.

Control excess capacity? But that means a lower output of capital
goods, the basis of prosperity. Increase consumption? But that tends
to abolish profits. Capitalist production must expand or decline: it
cannot be stabilized. And the capitalists are forced to do the very
things which aggravate their problems. A ruling class is the slave of
the contradictions and the destiny of its being. Thus the American
slave power, beset by the necessity of expansion or the inevitability of
decline, chose the suicidal adventure of war. . . .

Not only, in the epoch of decHne, is there a greater downward
pressure on the rate of profit: the mass of profits tends to fall. For-
merly, a fall in the rate was offset by a rise in the mass of profits. The
capitalists are enriched more by an income of $2,000,000 on a capital
yielding 5% than by an income of $1,000,000 on a capital yielding
10%. And the mass of profits must tend to fall under the conditions
of constantly larger fixed capital, lower production, and increasing
excess capacity.* The rate of profit falls more precipitously and
aggravates all the disturbances created by the fall. In the effort to
save itself capitalism strengthens the downward pressure on the rate
and mass of profit. The state spends money lavishly to prop up the
sagging foundations of capitalism — loans to industry and subsidies,
public works, promotion of exports, imperiaixsm, and war. It must
also spend money on relief, to prevent a revolt of the masses. These
expenditures increase the public debt and taxation. The burdens of
taxation are thrust mainly upon the workers, farmers, and lower
bourgeoisie, but profits are also taxed, and tends to lower the mass
and rate of profit. (If the drain on profits becomes too great, relief is
cut, and capitalism, by means of Fascism, throws all the burdens of
decHne upon the masses.)

The fall in the rate of profit, particularly in the epoch of decline,
is the most serious threat to capitalism. Many bourgeois economists,
among them Keynes, admit the prospect of a steadily falling rate of

* "As soon as a point is reached where the increased capital produces no larger,
or even smaller, quantities of surplus value than it did before its increase, there would
be an absolute overproduction of capital. . . . There would be a strong and sudden
fall in the average rate of profit. ... A portion of the capital would lie fallow com-
pletely or partially . . . while the active portion would produce values at a lower rate
of profit, owing to the pressure of the unemployed or partly employed capital. . . . The
fall in the rate of profit would then be accompanied by an absolute decrease in the mass
of profits." Karl Marx, Capital, v. Ill, p. 295.

Production and Consumption: Capitalist Decline 215

profit (or rate of interest). But some of them view the matter with
equanimity. Thus Keynes says:

"The prospect for the next twenty years appears to me to be a strong
tendency for the natural-rate of interest to fall, with a danger lest this
consummation be delayed and much waste and depression unneces-
sarily created in the meantime by central banking policy preventing
the market-rate of interest from falling as fast as it should. . . . The
risk ahead of us is . . . lest we experience the operation of a market-
rate of interest which is falling but never fast enough to catch up
with the natural-rate of interest, so that there is a recurrent profit
deflation and a sagging price level. If this occurs our present regime
of capitalist individualism will assuredly be replaced by a far-reaching
socialism." ^^

By a stroke of hocus-pocus, Keynes converts the threat to capitalism
into a promise of life everlasting. If only the capitalists accept a lower
rate of profit! But they won't. Keynes himself proves this, by his
unsuccessful agitation to lower the interest rate. Capitalist production
is a perpetual struggle against the tendency of the rate of profit to
fall. The struggle becomes more desperate in the epoch of decline.
If a small fall in the rate of profit creates crises and depressions, a
considerable fall necessarily throws capitalism into convulsions. For
profit is practically abolished if the rate falls too low, as profits would
be absorbed by capital replacements.

An American fascist, Lawrence Dennis, clearly appreciates the
danger: "The present financial organization of society is such that a
progressive decline of the interest rate to near zero would entail con-
sequences which seem humanly unendurable. The declining interest
rate would paralyze economic activity long before a zero interest rate
was approximated."^"* Why? Because capitalism will not passively
accept a rate of profit which threatens profit itself. It will not volun-
tarily accept doom. Capitalism will struggle against the falling rate of
profit. It will destroy and depreciate capitals, so that the rate on the
surviving capitals may rise. It will limit production, throw millions
out of work, lower wages, and depress mass consumption, in order to
"earn" a higher rate of profit. Yes, capitalism will struggle, desperately
and brutally. It will resort to the export of capital and imperialism,
and war, to prevent the rate from falling. It will resort to Fascism, as
is urged by Dennis, whose heart bleeds over the fall in the interest rate,
subjugating the workers and farmers, degrading the professionals,
mobilizing savagery in defense of the profit system. The fall in the
rate of profit is not, as Keynes seems to imagine, the means of a

2i6 The Decline of American Capitalism

smooth transition to a "new social order" which "is" and yet is "not"
capitalism. It is the expression of economic decline and an omen of
violent class struggles, social explosions, and wars.

But the fall in the rate of profit is also the omen of a really new
social order. For Keynes is right on one thing: because of disturbances
created by the falling rate of profit, "capitalist individualism will be
replaced by far-reaching socialism." In final analysis, the falling rate
is due to the antagonism between production and consumption under
capitalism; and the growing antagonism is an expression of the
objective socialization of industry and the enormous increase in its
productivity, the objective basis of socialism. The fall in the rate
of profit indicates, moreover, that there are economic limits to the
development of capitalism, that it nurtures the seeds of its own decay.
In the words of Marx:

"The rate of profit is the compelling power of capitalist production,
and only such things are produced as yield a profit. Hence the fright
of the English economists over the decline of the rate of profit. That
the bare possibility of such a thing should worry Ricardo shows his
profound understanding of the conditions of capitalist production.
. . . What worries Ricardo is the fact that the rate of profit, the
stimulating principle of capitalist production, the fundamental premise
and driving force of accumulation, should be endangered by the
development of production itself. There is indeed something deeper
than this hidden at this point, which he vaguely feels. It is here
demonstrated in a purely economic way, that is, from a bourgeois
point of view, within the confines of capitalist understanding, from
the standpoint of capitalist production itself, that it has a barrier, that
it is relative, that it is not an absolute but only an historical mode of
production corresponding to a definite and limited epoch in the
development of the material conditions of production."**

Summary

Capitalism develops the forces of production more than the forces
of consumption. This is a condition of the accumulation of capital.
Consumption grows only if an increasing output of capital goods, the
means of converting profits into capital, creates consumer purchasing
power which is spent on consumption goods (and services). If it be-
comes unprofitable to produce capital goods, and their output falls,
production and consumption must fall simultaneously. For the capital-
ist system is based on the making of profits and their conversion into
capital, and this creates an irreconcilable antagonism between produc-
tion and consumption.

One result of the antagonism is cyclical crisis and breakdown.
Although the production of capital goods creates purchasing power,
the lag of wages behind profits eventually engenders a deficiency in
consumption, which becomes acute when markets are saturated by
the mounting output of newly producing capital goods. The consump-
tion goods industries, overequipped and overproducing, lessen their
demands for capital goods. The output of capital goods falls, and the
crisis moves on to depression. Production revives if and when there is
a renewed demand for capital goods; and if the demand is an increas-
ing one, revival moves on to recovery and prosperity.

Another result of the antagonism between production and con-
sumption is that the productive forces are never fully utilized. This
amounts to a restriction of production and consumption. The re-
striction was relative to the epoch of the upswing of capitalism. Both
production and consumption scored an absolute increase, although
the increase was always below the possibilities of industry; and while
the workers' consumption rose (in spite of periods when it was sta-
tionary or decreased) it fell relatively to the share of the propertied
classes. In the epoch of decline, however, the tendency toward the
restriction of production and consumption becomes absolute. Capitalist
prosperity depends upon an increasing output and absorption of capital
goods. With the older industries mechanized, no new industries de-
veloping, and the industrialization of new regions declining — with
measurable exhaustion of the long-time factors of economic expansion

217

2i8 The Decline of American Capitalism

and their increasing demand for capital goods — there is no chance of
an upsurge in the production o£ capital goods and, consequently, of
an upsurge in prosperity. For capitalist industry fully to utilize its
productive forces would require a great increase in mass consumption
by absorbing the unemployed, shortening hours, and raising wages;
but this would seriously reduce profits and threaten profit itself. Under
these conditions, capitalist industry tends toward an absolute restrict-
tion of production and consumption.

The average yearly rate of growth of production has been slowing
down for many years. It is the inevitable expression of growth itself.
Nevertheless the slowing down of the rate of growth is eventually
ruinous economically, as it tends to approximate to zero and expansion
is a necessity of capitalist production. Expansion must primarily, how-
ever, take the form of an increasing output of capital goods, which
produce more profits and embody the capitalist claims to wealth and
income. If expansion is primarily in consumption goods the rate of
profit must fall disastrously. The capitalists restrict production. Re-
striction, if it becomes general, means not only a rate of growth ap-
proximating zero but an absolute decrease in production, with the
rate of profit eventually tending to fall disastrously. These develop-
ments and contradictions create a permanent crisis. It is the decline of
capitalism.

Decline is not collapse. The decline of capitalism does not mean
that the economic order is unable to function, but that it must func-
tion on a lower level. It does not mean an inability to restore produc-
tion and prosperity, but an inability to restore them on any considerable
scale. While the decline may be interrupted, the downward movement
will persist. Capitalist decline involves, primarily, an increase in
class-economic, social, and international disturbances, a tendency toward
stagnation simultaneously with the aggravation of instability, a reaction
against progress in all its forms.

The capitalist class strives to throw the burdens of decline upon the
workers (and farmers and professionals). It slashes their wages, throws
millions out of work, and limits their consumption. In particular,
unemployment becomes greater and increasingly permanent, a develop-
ment inherent in the dynamics of capitalist production. In the epoch
of the upswing of capitaHsm unemployment, other than seasonal
and cyclical, was essentially technological — ^the result of displacement
of labor by more efficient machinery. Displaced workers were even-
tually absorbed because of the upward movement of production (the
tendency was, however, for unemployment to increase). In the epoch

Summary 219

of the decline of capitalism unemployment is essentially economic —
workers are still displaced by improved technological efficiency, but
they are no longer reabsorbed because of the downward movement
of production; and this becomes the main cause of unemployment.
Increasing technological efficiency is no longer accompanied by in-
creasing expansion of industry. Unemployment becomes disemploy-
ment. A growing mass of unemployable workers, whom the profit
economy condemns to a living death, is characteristic of the decline
of capitalism.

PART FIVE
Unemployment, Technology, and Capitalism

Introductory

Jl HE problem of increasingly great permanent unemployment, of the
inability to provide work for millions of men and women eager to
work, was not a creation of the depression. Like the decline of capital-
ism, it emerged in the midst of the flourishing prosperity of 1923-29.
For employment, during that "Golden Age," moved downward while
production and profits were moving upward.

Mass unemployment is essentially a peculiarity of capitalism. It has
three forms: seasonal unemployment, existing only because it is
more profitable not to regularize employment; cyclical unemployment,
the result of the recurrent breakdowns of industry, of depression; and
the minimum unemployment which is independent of seasonal and
cyclical influences. The third form of unemployment is styled "nor-
mal," the expression of an economic system in which the abnormal
so often becomes the normal. "The unemployed percentage," accord-
ing to one bourgeois economist, "however it may fluctuate, never
fluctuates down to zero."^ Normal unemployment means simply that
capitalist industry is so organized and managed that there must
always be a reserve of unemployed workers, even in the most pros-
perous times, to provide labor for new enterprises and as a means
of forcing down wages. Under capitalist conditions, the providing of
steady employment would hamper expansion (which is unplanned)
and tend to raise wages to unprofitable levels. Normal unemployment
is therefore a condition of capitalist production and accumulation.

In the United States, because of its greater and more violent expan-
sion, normal unemployment has always exceeded that in other coun-
tries. Unemployment averaged 7.8% of the available workers in the
prosperous years 1900-13 (excluding the major depression of 1907-
09).^ It became worse in 1923-29, as a direct result of unusual pros-
perity.

If the theoretical assumptions of the "new capitalism" (and now of
Niraism) were valid, there would have been no cyclical crisis and
breakdown. Nor would there have been any substantial increase in
unemployment. But the assumptions, where they were not sheerly
apologetic, were wholly unreal. They were compact of doctrinal ab-

223

224 The Decline of American Capitalism

stractions, having little relation to a dynamic capitalism rent by strains
and stresses and contradictions, and ignoring the antagonisms o£ an
economic system dominated by the production o£ profits. It was, and
is, assumed that increasingly higher employment and wages follow
an increase in the productivity of labor and in production; that as
production costs decrease and output rises, prices fall, consumer pur-
chasing power and mass consumption mount, and more goods are
produced and more employment is created. In other words, the
assumption is that the gains of greater productivity and production
are proportionally distributed. But there is no such proportional dis-
tribution under capitalism, whose main characteristic is disproportion-
aUty. Hence crisis and breakdown. Hence the spread of unemployment,
like creeping paralysis, in the midst of unprecedented prosperity.

An examination of the fluctuations of employment, in their rela-
tion to production, prosperity, and depression, demonstrates that there
is no objective basis for the wholly unreal theories of capitalist
apologists.

CHAPTER XIV

Prosperity and Unemployment

iU NEMPLOYMENT is essentially an aspect of the higher productivity
of labor under the social relations of capitalist production. Normal
unemployment grows when the productivity of labor rises dispropor-
tionately to output. Cyclical unemployment prevails in depressions,
brought about primarily by forces identified with the higher
productivity of labor (which is not matched by higher employment
and wages). And the increasingly greater unemployment of capitalist
decline is a result of industry having become so highly productive
that it is unprofitable to use all its capacity: hence millions of
workers are thrown out of work. The increasing efficiency of
American industry in 1920-29 considerably raised the total of "nor-
mally" unemployed workers. For while the higher productivity of
labor may mean higher wages, it always means a displacement of
labor because fewer workers are required to produce a larger output.
Thus labor is penalized by its own efficiency.

The great rise in the productivity of labor, in output per worker,
started in 1921-22, under the impact of falling prices and rising real
wages. In 1922, after a temporary shutdown, during which equipment
was improved, the Ford Motor Car Company turned out more work
with 40,000 workers than formerly with 57,000. ... In 1925, the
Owens automatic bottle machine was adapted to the production of
prescription ovals, and man-hour productivity rose 4,100 times. . . .
A survey of thirty-five plants in 1927 showed that output per worker
was 75% higher than in 1919 and 39% higher than in 1924. . . . The
productivity of labor rose 98?^ in 1919-27 in the manufacture of
automobiles and 198% in rubber tires. ... In blast furnaces, with
operation becoming increasingly automatic and almost manless, the
productivity of labor in 1929 was 135% higher than in 1919, and 43%
higher in steel works and rolling mills. ... In 1923-29, productivity
rose 65% in the coke industry, 48% in beet sugar and condensed milk,
46% in tanning, and 44% in petroleum refining. ... It rose 30% in
the electrical manufacturing industry and over 27% in electric power
plants. . . . The dial telephone displaced more than half the operators.
. . . Building construction was intensively mechanized. The cement

225

226 The Decline of American Capitalism

gun and the paint spray cut in half the labor of painting; a sanding
machine for flooring did the work of six hand workers; the time
needed to erect large buildings was cut 30% to 40%. ... In road-
building, output per worker rose from 4.7 lineal feet in 1919 to 17.7
lineal feet in 1928.^ . . . Many equally great increases in productivity
took place in various processes of labor on the railroads and in mining
and agriculture.

The rise in the productivity of labor was uneven, but it rose sub-
stantially in all industries. In 1927, productivity in manufactures was
42.5% higher than in 1919, 40.5% higher in mining, 12.5% higher on
the railroads, and 29.5% higher in agriculture. (For the period 1899-
1927 the increases were: manufactures 48%, mining 118%, railroads
63%, and agriculture 6i%.) ^ The productivity of labor kept on rising:
thus on the railroads in 1930 it was 20% higher than in 1920.*

There was, naturally, a displacement of labor because of technolog-
ical changes and higher productivity. This is a normal aspect of cap-
italist development. "It is," according to one bourgeois economist, "as
old as the present industrial system and it is inherent in this system
... a constant accompaniment of progress in modern industry." ^ But
technological displacement is a constant torment to the workers, as
it deprives many of them of skill and occupation.

The significant aspect of the rising productivity of labor in 1919-29
was not its rate nor its technological displacement of workers. Only
in manufactures was the rate unusually high in comparison with
1 899-1 9 1 9, when there was a lag in the increase of productivity among
factory workers: it was not materially higher than in the i86o's — 90*5.
And in the past, displaced workers were almost wholly reabsorbed by
the expansion of industry, accompanied by an increase in the total
number of workers employed. The significant aspect of the rising
productivity of labor in 1919-29 was that for the first time in Amer-
ican history there was an absolute displacement of labor, a decrease
in the employment of directly productive workers.

Large numbers of workers were permanently displaced in manufac-
tures and mining and on the railroads (Table I). By 1929 the higher
productivity of labor in manufactures had displaced 2,1832,000 workers,
of whom 2,416,000 were, however, reabsorbed by an increase in pro-
duction; the absolute displacement was 416,000 workers. On the rail-
roads 345,000 workers were displaced by higher productivity and 71,000
by a decrease in output, making the displacement 416,000 workers.
In coal mining higher productivity displaced 95,000 workers but the
absolute displacement was raised to 171,000 workers by lower out-

Prosperity and Unemployment

TABLE I

227

The Displacement of Labor by
and its Absorption by A

MANUFACTURES

Changes in Employment (-\-) or ( — )

During the Current Year

DUE TO DUE TO NET CHANGE

CHANGES IN CHANGES IN SINCE

YEAR EFFICIENCY OUTPUT I92O

1921 163,000 2,045,000 2,208,000

1922 — 935,000 +1,759,000 — 1,384,000

1923 183,000 +1,350,000 217,000

1924 276,000 584,000 1,077,000

1925 — 495,000 +948,000 — 624,000

1926 93,000 +211,000 506,000

1927 — 68,000 — 204,000 — 778,000

1928 — 503,000 +440,000 — 841,000

1929 — 116,000 +541,000 — 416,000

Increasing Productive Efficiency
merican Industry, i^20-2g

RAILROADS *

Changes in Employment (-\-) or
( — ) During the Current Year

DUE TO DUE TO NET CHANGE
CHANGES IN CHANGES IN SINCE
EFFICIENCY OUTPUT I92O

+2,000 494,000 492,000

— 36,000 +100,000 — 428,000

52,000 +286,000 194,000

— 47,000 — 103,000 — 344,000

— 82,000 +80,000 — 346,000

— 39,000 +93,000 — 292,000

+9,000 — 67,000 — 350,000

— 74,000 — 5,000 — 429,000

— 26,000 +39,000 — 416,000

COAL MINING t

Changes in Employment (-{-) or

( — ) During the Current Year

DUE TO DUE TO NET CHANGE

CHANGES IN CHANGES IN SINCE

y OUTPUT 1920

165,000 180,000

62,000 269,000

+224,000 60,000

94,000 146,000

19,000 172,000

+ 102,000 65,000

— 66,000 — 142,000
— 25,000 — 188,000
+29,000 — 171,000

YEAR

EFFICIE

I92I

15,000

1922

27,000

1923

15,000

1924

+ 8,000

1925

7,000

1926

+5,000

1927

11,000

1928

21,000

1929

12,000

TOTALS FOR THE 3 GROUPS

Changes in Employment C+J or

( — ) During the Current Year

DUE TO DUE TO NET CHANGE
CHANGES IN CHANGES IN SINCE
EFFICIENCY OUTPUT 1 920

176,000 2,704,000 2,880,000

998,000 +1,797,000 2,081,000

250,000 +1,860,000 < 471,000

315,000 782,000 1,567,000

584,000 +1,009,000 1,142,000

127,000 +406,000 863,000

70,000 337,000 1,270,000

598,000 +410,000 '1,458,000

154,000 +604,000 1,003,000

• Class I railroads.

t Anthracite and bituminous coal mining combined.

Source: David Weintraub, "The Displacement of Workers Through Increases in
Efficiency and Their Absorption by Industry," Journal of the American Statistical Associ-
ation, December, 1932, pp. 396-97. The table covers wage-workers only.

put. (In both these cases the immediate cause o£ the decrease in
output was essentially technological. Improved motor trucks competed
more effectively with the railroads; electricity increasingly cut into
the demand for coal by industry and the home, steam power plants
used less coal because of more efficient combustion, and hydroelectric
plants dispensed with coal altogether.) Thus the higher productivity

228 The Decline of Americaa Capitalism

of labor permanently displaced 1,003,000 workers in manufactures and
coal mining and on the railroads.

But that was not all. There was, also for the first time, an absolute
displacement of labor in agriculture. In 1929 American farms gave
work to 540,000 fewer persons than in 1919. The number of farms,
rising steadily from 1,449,073 in 1850 to 6,448,342 in 1920, fell to
6,288,648 in 1930, a decrease of 159,695. Thus most of the displacement
was of farm laborers, either hired or the children of farmers. As, how-
ever, the farm population fell from 31,614,000 in 1920 to 30,447,000 in
1930, the actual displacement was much greater, there being, probably,
1,000,000 persons who had to find work in other than agricultural
occupations.® A surplus farm population appeared in 1909-19, because
of the small increase in the number of persons working on farms. It
has since grown and it will continue to grow as productivity in farm-
ing rises and output is stationary or falls. This completes the profound
change inaugurated by the closing of the frontier, which still left,
however, some few opportunities of absorbing new workers in farm-
ing and of rising on the agricultural ladder; but even those few oppor-
tunities are now ended. American farming is becoming as stagnant
and hopeless as European farming has been for the past century. The
surplus farm population of Europe was absorbed by the expansion of
industry and by emigration, much of it to the United States when the
frontier was being renewed. But American farming begins to produce
a surplus population in the epoch of the decline of capitalism, when
industry is unable to absorb those who cannot find work on the farms.
This has long been true of European farming — and nearly all nations,
moreover, are now restricting immigration. . . .

The absolute displacement of directly productive workers is of ex-
traordinary significance. It was a result of the development of the
forces underlying the decline of capitalism. The direct significance
appears clearly in a comparison of the absorption and displacement
of workers in the thirty years 1899-1929 (Table II). In 1899-1919,
7,010,000 workers were absorbed by employment in manufactures,
mining, agriculture, and the railroads. In 1919-29, on the contrary, the
same industries displaced 1,155,000 workers (including clerical work-
ers, whose labor was increasingly mechanized) . And this displacement
was accompanied by greater output, except for a small decrease on
the railroads.*

The significance of the absolute displacement of labor becomes more

• While the output of coal decreased, there was an increase in other minerals: total
mining output rose.

Prosperity and Unemployment 229

apparent if comparisons are made on the basis of two ten-year periods.
In 1909-19, three major industry groups absorbed 3^847,000 new work-

TABLE II

Absorption and Displacement of Workers, iS^g-igig

1899-19]

t9

19]

[9-29

WORKERS ABSORBED

WORKERS DISPLACED

PER-

PER-

NUMBER

CENT*

NUMBER

CENTt

Manufactures

5,361,000

105.6

241,000

2.3

Railroads X

943,000

92.7

266,000

13.6

Mining t

366,000

62.6

108,000

II.4

Agriculture

340,000

3.9

540,000

6.0

Total

7,010,000

45-9

1,155,000

5.2

•Percentage of increase over workers employed in 1899.

t Percentage of decrease over workers employed in 191 9. (The displacement figures
are lower than those in Table I because 191 9 instead of 1920 is used as the base year.)

t The figures on mining (including quarrying) start with 1902; on railroads with
1900.

Workers include "salaried employees" in manufactures, railroads, and mining. In
1919-29, non-clerical salaried employees increased, so that only clerical workers were
displaced.

Source: Computed from statistics in Bureau of the Census, Manufactures, 1929 and
Mines and Quarries, 1929; Statistical Abstract, 1932.

crs: manufactures 35175,390, railroads 457,615, and agriculture 214,000.
The process of absolute displacement began in mines and quarries,
with a decrease of 42,325 workers. While there was a rise in the total
number of workers absorbed, from 3,163,000 to 3,847,000, the rate of
absorption fell slighdy, from 20.7% in 1899-1909 to 20.1% in 1909-19.
This slackening was a forecast of the 5.2% rate of displacement in
1919-29, which necessarily produced an increase in unemployment.

In 1909-19, there was an increase of 6,027,000 in the number of
persons gainfully occupied. To that must be added the 42,325 workers
displaced in mining because of the rising productivity of labor, and
310,000 workers displaced in construction because of the decrease in
building during the World War and shortly after.^ Of the 6,388,000
workers who had to find new jobs, 3,847,000 found them in manufac-
tures, railroads, and agriculture. All other occupations had to absorb
only 2,541,000, of whom 822,000 were absorbed in trade.

In 1919-29, there was an increase of 7,180,000 in the number of

230 The Decline of American Capitalism

persons gainfully occupied/ to which must be added the minimum
of 1,155,000 * workers displaced by the rising productivity of labor.
Of the 8,335,000 persons (mainly wage-workers) who had to find
new jobs, all had to find them in occupations other than in manufac-
tures, railroads, mining, and agriculture.

This was an unprecedented development, of profound significance.
For it meant that the four major industry groups which formerly
absorbed most of the new workers, now displaced a considerable
number of workers. It meant that, to provide employment for the
8,335,000 persons who sought work, occupations other than in manu-
factures, railroads, mining, and agriculture had to grow nearly three
and one-half times as much as in igo^-ig. They did experience an un-
usual growth. Distribution, motor transportation, and trade (including
automotive and radio products, garages, chauffeurs, motion pictures, in-
surance agents), gave employment probably to over 3,000,000 persons.
There were similar great increases in some other occupations. But
absorption in the construction industry, in spite of its unusual
expansion, was limited to 320,000, and in 1929 its total employees (at-
tached to the industry, but not necessarily regularly employed) was
somewhat lower than in 1909.^ The statistical evidence is incomplete.
The decrease in the number of directly productive workers is a clear
indication, however, that there was, after all absorptions, a substantial
remainder of unabsorbed and unabsorbable workers. Prof. Wesley C.
Mitchell, writing early in 1929, said:

"The supply of new jobs has not been equal to the number of new
workers plus the old workers displaced. Hence there has been a net
increase of unemployment, between 1920 and 1927, which exceeds
650,000 people."®

That was admittedly a minimum estimate. Agricultural workers are
not included, and the figures of unemployment in groups comprising
nearly one-half of total employees are conceded to be "the least reliable
of all and probably much too low." It is much more likely that unem-
ployment increased by at least 1,000,000. As there were probably
1,500,000 unemployed workers in 1920, normal unemployment (includ-
ing clerical workers) in 1927-29 rose to 2,500,000, excluding the unem-
ployed in professional occupations. And this great increase in the

♦Actual displacement was over 1,500,000 workers if the calculation is made for
the years 1920-29. Employment in 1920 was greater than in 191 9, and the absolute
displacement of labor began only in 1922-23.

WOAKCRS £MPl0y£O

21S^

250.

7X5 ^

TOO

j-jEMPLOYMENTj-^

*- PRODUCTIVITY
P OF LA80R n

Mm W04 woq |qi4 Wn \<\X\ \^2h WZ5 RX7 l*JM

X. THE CREATION OF DISEMPLOYMENT.

232 The Decline of American. Capitalism

reserve army of the unemployed took place in the midst of the most
flourishing prosperity.*

That unemployment did rise, whatever the magnitude of the in-
crease, is an indisputable fact. It was observed and admitted by a
number of bourgeois economists. They maintained that technological
efficiency, or the productivity of labor, was rising faster than produc-
tion, and displacing many workers. This was denied by the more
sheerly apologetic economists. One of them, the president of the Na-
tional Industrial Conference Board, said:

"It is a well demonstrated economic principle that increased pro-
duction creates new wants and that new industries bring with them
new demands for both materials and services. As mechanization of
industry with its requirement of fewer workers per unit of product
decreases production costs and prices, the demand for commodities
simultaneously increases and causes not only the theoretically released
workers to be absorbed but in addition calls new workers into pro-
duction."^^

Not necessarily. For the argument assumes "ideal" general principles
regardless of whether they work in reality. Production costs decrease,
but prices may not fall correspondingly: capitalist enterprise retains
as much as it can of the gains of the higher productivity of labor.
Prices in 1923-29 did not move downward as productivity moved
upward. Even if prices fall, they may not do so as much as costs, and
consumer gains are offset by the losses of displaced workers. Dispro-

• Increasing unemployment aggravated competition in the labor market and helped
to prevent any general rise in wages, one of the most important uses of the reserve
army of the unemployed. "The overwork of the employed part of the working class
swells the ranks of the reserve; while, conversely, the increased pressure which, through
competition, the members of the reserve exert upon those who are in work, spurs
these latter to overwork, and subjects them more completely to the dictatorship of
capital." Karl Marx, Capital, v. I, p. 702. "The difficulty of obtaining employment
has discouraged workers from leaving the jobs which they have held — the resignation
rate among factory employees between 1920 and 1926 decreased two-thirds." Sumner
H. Slichter, "Market Shifts, Price Movements, and Unemployment," Ameiican Economic
Review, Supplement, March, 1929, p. 13. "Unemployment is reducing labor costs per

unit of output Invariably labor efficiency increases whenever there are more

men than jobs." John Moody, "Review and Forecast," Moody's Investors Service,
January 5, 1928, p. i. "The labor reserve in the United States, despite immigration
restrictions, is slowly increasing and is likely to act as a bar to any further general
rise in the wage level." Magnus W. Alexander, president, National Industrial Con-
ference Board, New York Tames, January i, 1928. "We face an increase in unemploy-
ment. . . . Unemployment, disagreeable though it be, has its use despite the heartaches
which accompany it. . . . The shadow of unemployment will reduce labor to sanity."
Nelson, Cook and Company, bankers, New York Times, March 11, 1928.

Prosperity and Unemployment 233

portions in prices and profits, in production and consumption, are
intensified by the fact that gains in efficiency are unevenly distributed *
within an industry and between industries. Prices are affected by pro-
ductivity, but they are also affected by long-time price movements and
by the resistance o£ monopolist combinations to lower prices. Increas-
ing productivity, where it requires new equipment, stimulates output
and employment in the machinery industries; but the labor incorpo-
rated in the making of the new machinery is always less than the labor
it displaces, otherwise there would be no gain to the buyer. Moreover,
the greater efficiency of new machinery may flow from qualitative
changes, and thus reduce the amount of new equipment. Or higher
productivity may result from more intensive exploitation of labor,
requiring no capital expenditure. Workers are displaced in the ma-
chinery industries because there, too, the productivity of labor rises.
New industries create new demands for labor, but such demands arc
relatively small, as these industries, adopting the most efficient methods
of production, have a high composition of capital (with a low ratio of
labor and wages to equipment and raw materials). And new indus-
tries may not develop rapidly enough or on a scale proportionate to the
displacement of labor. The demand for luxuries may increase, but their
production may also require less labor as its productivity rises. Finally,
because of high profits, low wages, and the concentration of income,
the demand for commodities may not rise simultaneously and equally
with the rise in productivity and production : if it did, there would be
neither an increase in unemployment nor cyclical crises and break-
downs. Thus changes may go on within the limits of magnitudes and
proportions which upset the "ideal" assumptions of apologetic eco-
nomics.

A liberal reformer, Prof. Paul H. Douglas, also accepted the "ideal"
assumptions of apologetic economics :

"It is clear that permanent technological unemployment is impos-
sible. . . . Improvements in industrial processes, like changes in
demand, will produce a shifting of labor and capital within the
economy."

•There must be, under capitalism, an uneven distribution of technical efficiency.
The simultaneous adoption by all enterprises of improved methods of production would
tend, from the standpoint of competition and profit, to cancel the gains. A rise in
the rate of profit ensues where an enterprise has the exclusive use of more efficient
methods and can undersell its competitors; but when their use becomes general the
rate of profit tends to fall because of the higher composition of capital, excess capacity,
and competition. The profit motive is the basic cause of the planless nature of capitalist
production: they arc inseparable.

234 TTi^ Decline of American Capitalism

But the "shifting of labor and capital" is always within definite limits,
permanently excluding from employment a part of the available work-
ers— small in the epoch of the upswing of capitalism, increasingly larger
in the epoch of decline. And Douglas' modification of his conclusion
permits drawing one which is the complete opposite of his own:

"There is likely to be a considerable intervening period of unem-
ployment before all the [displaced] workers find employment. During
this period they will not receive wages and their purchasing power
will in consequence be reduced. Some unemployment will tend to
result elsewhere. This element of instability is multiplied if improve-
ments are taking place simultaneously in a large number of industries
and is particularly aggravated if the commodities are subject to in-
elastic demand. If the rate of technical progress in a society is, more-
over, accelerated, the number who are thrown out of employment
temporarily is increased. The purchasing power of these workers is
temporarily reduced and their demand for goods curtailed. This
transitional loss of employment has therefore a magnified effect and
prevents the previous analysis from working out to the full extent
and with the precision which has hitherto been implied." ^^

Precisely! The "considerable intervening period of unemployment"
and the "element of instability" upset all the "ideal" assumptions
that workers displaced by the higher productivity of labor are neces-
sarily absorbed by higher output. And if there are factors which
prevent the process of absorption "from working out to the full extent
and with precision," why insist categorically that "permanent tech-
nological unemployment is impossible'} Combinations of the same
factors underlying "considerable intervening periods of unem-
ployment" may conceivably produce absolute displacement and an
increase in permanent unemployment. It is not only conceivable
theoretically, it is demonstrated by the granite facts of the steady,
if small, increase in the reserve army of the unemployed in the epoch
of the upswing of capitalism, and of the constantly greater increase
in the epoch of decline.*

Even if it were true that workers displaced by technological changes

* Technological displacement of labor added to the unemployment produced by
capitalist decline in Germany, England, and other capitalist nations of Europe. An
English economist says: "The introduction of new and improved methods into an
industry has the immediate effect of displacing labor by enabling the industry to satisfy
its market with a smaller supply of labor. ... At any particular moment of time there
is a considerable number of workers who have been displaced and who have not yet
been absorbed. Hence, during a period of rapid progress, technological unemployment
is abnormally high." Allan W. Rather, U Britain Decadent? (i 931), pp. 25-26.

Prosperity and Unemployment 235

and higher productivity are absorbed as output rises, great hardships
would still be imposed upon them. Unless the displaced workers
are absorbed by greater output in the same plant and on the same
job, they lose their skills or familiarity with particular processes, the
older workers are thrown upon the scrap heap, and at least an
interval of unemployment must ensue. A survey in Philadelphia in
April, 1929, when prosperity was still on high levels, disclosed 100,000
unemployed workers, io.47o of the available labor force; 16% of all
families were experiencing unemployment. Of these, 50% had been
out of work for three months, 28% for six months, and 12% for
one year or more.^^ Even more significant were the findings of a
survey of displaced workers "to see just how many were being absorbed
by American industry," conducted during the summer of 1928 in
Baltimore, Chicago, Columbus, Ohio, and Worcester, Mass. The find-
ings are here summarized:

Of 754 workers, who had been discharged during the twelve months
prior to the survey, 45.5% had been unable to secure employment
other than odd jobs.

Of the workers still unemployed, the majority had been out of
work four months or longer: 8.4% for a year, 9.3% for eleven months
or longer, and only 58.8% had been unemployed for less than six
months.

Of the 54.5% who were absorbed in new jobs, only 12% had found
permanent work within a month after discharge; one half had been
out of work three months or longer and one-fifth six months or
longer.

Of the displaced workers who found new jobs, more than one-half
had to accept work other than the kind to which they were accus-
tomed, usually of a type where their former s\ills were useless. The
older workers had the greatest difficulty in finding new jobs, as it
is a general policy not to employ workers who are past the age of 45.

Of the displaced workers, only 13% were absorbed in the "newer"
industries or occupations — radio, gasoline stations, garages, chauffeurs,
moving pictures, hotels and restaurants, beauty parlors, bootlegging.

Of the workers who found new jobs, 27.1% made about the same
as in their old jobs and 18.8% made rnore, while the majority made
less than their former earnings.^^

Thus there is wanton human suffering and wastage even if the
displaced workers are eventually absorbed. Workers are forced to
take new jobs at lower wages. They are deprived of old skills and
experience. Months and months of unemployment intervene, while

236 The Decline of American Capitalism

their paltry savings melt away, and the compulsion arises to accept
charity. In 1927, when the Ford automobile plants in Detroit threw
60,000 workers out of work, the city was forced to spend $1,954,000
on charity relief, more than in the two previous years combined.
Henry Ford generously contributed $175,000 and this bit of wisdom:
"I know it's done them a lot of good — everybody gets extravagant —
to let them know that things are not going along too even always." ^*
And in 1928, H. W. Morehouse, president, Brookmire Economic
Service, insisted that the increasing unemployment was really increas-
ing leisure: "With such progress in well-being, no wonder some
members of the family have decided to take life easier by ceasing to
work."" A book by Clinch Calkins, So7ne Fol\s Won't Work^, re-
vealed the reality, the conditions among the unemployed before March,
1929, in the midst of unprecedented prosperity. It gave 300 cases
chosen at random in thirty cities of twenty-three states. Let Miss
Calkins speak:

"In a group of twenty men on relief work cleaning streets, fifteen
had been displaced from skilled trades."

"When Riley lost his work he had no savings. The combination
of four children and a peak income of $28.50 weekly is not conducive
to savings accounts or investment. . . . Just what part of the $28.50
could the Rileys have put away in a sock ? ... So they ran into debt.
They fell behind on their furniture and insurance. At first Mrs. Riley
rather went to pieces and rushed about trying to get help. Then
she made frantic attempts to get a job herself. Novels could be written
about this particular period in unemployment — the almost invariable
shift of wage-earning from the man's to the woman's shoulders
because women work for less pay. . . . Finally she got work in a
cafeteria from eleven to three. She was paid $9 a week. And what
wonders she did with her $9! She slapped it on insurance. She slapped
it on the rent arrears. She slapped it on the furniture instalments.
. . . Then suddenly five or six of the newest comers were dismissed,
Mrs. Riley among them. . . . Since then she has worked at the sand-
wich counter of the Five and Ten and at several obscure eating
places near the docks. She received less pay and had longer hours.
. . . But she had to give up even this work when Rosey, aged eight,
contracted an illness which seemed directly traceable to 'poverty and
makeshifts resulting from unemployment.'"

Jervis was a skilled worker, a mixer of colored inks used by lithog-
raphers; he earned the comparatively high wages of $37 weekly,
and lived in a seven-room house with his wife and four children.

Prosperity and Unemployment 237

"During the last lay-off, machines were installed which laid on solid
colors of ink and blended them. Between October, 1928 and March,
1929 (six months), Jervis made fioo — at anything he could get —
for the most part laboring and stevedoring. When their savings were
gone and when they could no longer pay their rent, the Jervises went
to stay for a month with friends while they located a place to live.
He finally found one for $12 a month. To meet expenses he pawned
their possessions and sold their radio. The new house is one room
deep, has an outside toilet, no heater, and no kitchen stove. When
their case was reported, both parents and children were destitute of
shoes and clothing. A city nurse obtained for them a $3-a-week order
for groceries. Fortunately for the family, Jervis was injured on his
last day's work as a stevedore and went to bed with ulcerated legs
and a strained back. I say fortunately, for besides medical aid the
company paid him $15 a week for indemnity."

"He was out of work for fourteen months and got so discouraged
he turned on the gas." . . . "She resented her husband's idleness,
said he did not try to find work. He became inert and fatalistic. They
quarreled and were under constant domestic strain." . . . "Now that
he has lost his work she attempts to do outside housework besides
caring for her seven children. Frequently, over periods of time, she
had only bread and black coffee to feed them."

The Negro worker is hardest hit by unemployment. "The Lovejoy
saga is a clear case of race prejudice as such, since this family is
superior both in intelligence and education to many of the white
workers who have received preferment at their expense. . . . From
the spring of 1928 to December, 1928, they lived mainly on an occa-
sional day's work done either by the father and the mother and the
$2 or $3 a week earned by George in shining shoes."

The workers, when unemployed, resort to charity only as a last
resort, not until they are practically broken in body and spirit:

"Mrs. White of Philadelphia said she watched her children starving
until she could not stand it any longer. Before she asked for help
she undoubtedly went through the equivalent sacrifice of Fred John-
son, who, when he was accused by some one of standing on the
corners with other men, was defended by his wife. He stayed there
all noon, she said, for fear if he came home he would be tempted
to eat what they had been able to put on the table for the children.
. . . The six young Murphys of Boston are reported by their teacher
as being *soft' from lack of food. . . . The Hagers of Louisville made
their savings spin for two years of unemployment and then went

238 The Decline of American Capitalism

without food rather than ask for charity. . . . The Browns of Phila-
delphia were reported by their grocer as having lived on bread and
tea for six weeks. . . . An undernourished child was given by the
school teacher a medicine to whet her appetite. As time went on,
and she continued to give evidence that she was not eating enough,
a visit was paid to her home. Then it was discovered she had litde
to eat." ^^

These are the heartbreaking accompaniments of technological un-
employment, an aspect of the steadily increasing normal unemploy-
ment in 1923-29, while prosperity surged upward. (On a greatly
enlarged scale they are the accompaniments of cyclical unemployment.)
"1 J^now it's done them a lot of good." "Ta\ing life easier." . . .

The output of goods, of the means of Hvelihood, rose because of
the higher productivity of labor, of more efficient methods of pro-
duction. Simultaneously, however, the higher productivity of labor
deprived many workers of means of livelihood by depriving them
of employment. And industry operated below its capacity.

While millions of workers were unemployed there was, contrary
to the earlier trend, a tendency for child labor to increase during
1927-29, when both prosperity and unemployment reached their peaks.
According to Grace Abbott, Chief of the United States Children's
Bureau, full-time working certificates issued to children fourteen
to eighteen years old (sixty cities in thirty-three states) increased
from 150,000 in 1928 to 220,000 in 1929.^^ Although registering a
decrease over 1920, the number of children ten to seventeen years
old gainfully occupied in 1930 was 2,145,000.^® "The great mass of
working children," according to the National Child Labor Com-
mittee, "enter occupations that are monotonous in the extreme, lack-
ing all educative content other than a certain amount of training
in habits of work. What they must do can usually be learned in a
few hours or at the best a few days; after that it is a matter of re-
peating the same tasks over and over again. Such a procedure involves
more than the usual waste during the years when mental growth
and acquisition are at their highest and offers a poor substitute for
the training and self-expression of school life." ^^ Many children were
forced to work because of the technological displacement of their
fathers. And the number of working children was about equal to
the number of unemployed adults.

Another result of the higher exploitation of labor, besides the aug-
menting of normal unemployment, was a tendency for accidents to

Prosperity and Unemployment 239

increase in many industries. One method of raising the rate of ex-
ploitation is to make labor more productive by the introduction of
more efficient equipment. Another method is the intensification of
labor: the use of speedier and more complicated machines and more
speed-up, multiplying the pressure on the muscle and nerves of the
v^^orker. Work tended to become more dangerous. . . . From 1922
to 1925, in thirty-four industries employing 254,529 w^orkers, output
per worker rose 14.4% and the accident severity rate 2.5%. ... In
1925-26, eighteen out of twenty-four industries, employing 1,000,000
workers, had a rising accident severity rate. ... In 1929, plants re-
porting to the National Safety Council had a small decrease in acci-
dents but a small increase in the fatality rate. . . . Industrial accidents
in New York State rose from 346,000 in 1922-23 to 518,000 in 1926-27;
in 1929 there were 20,000 more compensatable accidents than in the
previous year. ... In this state's building trades the rise in accidents
was much greater than in employment — from 10,000 in 1923 to 21,600
in 1927. . . . The fatality rate in coal mining in 1921-25 was 2.73 per
1,000 employed workers; it was 3.32 in 1926, 2.94 in 1927, and 3.19
in 1928; or, on another basis, the fatality rate rose from 3.93 in 1916
to 4.54 in 1929. . . . The risks of the American coal miner (and
of the worker in general) are infinitely greater than those of the
European. In 1929, the death rate per 1,000 full-time 300-day workers
was 4.54 in the United States, 2.19 in Prussia, 1.31 in England, 1.29
in Belgium, and 1.15 in France. And the natural conditions in mining
are more favorable in the United States than in Europe. . . . The
iron and steel industry is usually considered a "model" of accident
prevention work. Yet, while the frequency rate fell in 1920-29, the
fatality rate was stationary and the permanent disability rate rose.
... In 1928, according to the National Safety Council, there were
24,000 fatal industrial accidents and 3,250,000 non-fatal. . . . Manage-
ments are directly responsible. Not more than 10% of industrial
enterprises are members of safety organizations. In 1928, the American
Gas Association sent an accident questionnaire to its members, but
the great majority did not reply. . . . Safety devices multiply but
employers refuse to spend the necessary money. The high accident
rate in the New York building trades is due, according to the Indus-
trial Commissioner, mainly to defective equipment and the disregard
of safety devices by employers. In the electric power industry the
most important safety devices are not being introduced because of
the cost. Safety engineers are usually limited in their efforts by con-
siderations of output, costs, and profits. . . . The responsibility was

240 The Decline of American Capitalism

placed squarely upon management by H. W. Heinrich, of the Trav-
elers Insurance Company, who completed an analysis o£ 73,000 indus-
trial accident cases, 10,000 from records of his company and others
from the records of plants. His conclusion was that 9^% of all acci-
dents are preventable; only 10% were due to physical or mechanical
hazards, while 88% were due to neglect by management. ... In one
of its reports the United States Department of Labor said: "All Ameri-
can industry has been much influenced by the effort for increased
production. The speeding up has not been accompanied by an equally
intense effort toward accident prevention." '^^

The tendency for accidents to increase in many industries was a
reversal of earlier trends.* It may become more marked; for, as the
mass of profits tends to fall, employers will introduce more speed-up
and will be more unwilling to pay for safety devices.

But the increase in unemployment was not a reversal. It merely
strengthened the tendency of capitalist industry to augment unem-
ployment. And this must become more marked under the conditions
of the decline of capitalism.

*In Germany, where rationalization raised productivity as much as in American
industry, there was a similar intensification of labor and an increase in accidents.
"Labor expressions of opinion on these problems have been particularly outspoken,
critical and bitter. Mechanization and speeding of work routines are held to have
increased fatal, major and minor accidents and the number of persons suffering from
industrial diseases. Speeds are adjusted without regard to cumulative fatigue, and the
killing pace which workers must keep shortens their life cycles and throws them into
the discard at an early age. Injuries reported have steadily increased as output per
worker, indicating greater productivity through rationalization, has risen." Output per
worker rose from loo in 1924 to 140 in 1929; the number of workers injured per
100 rose from 6 to 10, an increase of 66.6%- "The data given by both industrial and
professional classifications in the Statistisches Jahrbuch show, in nearly all cases, increases
in accident rates between 1927 and 1928. Estimates for 1929 are still higher. In all
cases the post-war figures are much larger than those for 1913." Robert A. Brady,
The Rationalization Movement in German Industry (1933), pp. 346-48.

CHAPTER XV

Disemployment and Surplus Population

JLn the past, industry absorbed more workers than it displaced, and
employment rose steadily. This historical fact is used as an argument
against the contemporary fact of increasing unemployment. Since the
industrial revolution, it is argued, technological change has created
new industries and a multitude of new jobs; although there was in
1920-29, a small displacement of workers, the total of employed
workers was greater in 1929 than in 1899. While "the expansion of
old industries," according to one economist, writing in 1929, "is not
sufficiently rapid, apparently, to absorb the rising generations, up
to the present time the increase over and above those absorbed by
the old callings has been taken up by the new industries."^ The
increase in unemployed workers is temporary: they will be eventually
absorbed by renewed expansion. So runs the apology.

But what has been need not always be. The theory that workers
displaced by machinery are absorbed by new occupations was formu-
lated a century ago, when capitalism was at the beginnings of its
great expansion, of an immense upward movement in production.
Now capitalism is in the epoch of decline, of a downward movement
in production. This fundamental fact must influence all interpretation
of former experience. Moreover, even in the epoch of the upswing
of capitalism there was a definite tendency for unemployment to in-
crease. In the United States, from 1865 on, constantly greater cyclical
and normal unemployment tormented the workers. Prosperity prevailed
in 1889 and 1899, yet unemployment among workers in manufactures,
transportation, and the building trades rose from 5.6% to 7%.^ And
in the following years the percentage of unemployed workers rose
steadily, both in prosperity and depression (Table III). In spite of
greater talk of "stabilizing" employment (as if words become deeds
by the sheer magic of words!) there was greater unemployment.
In the two periods of prosperity immediately preceding the World
War, unemployment, both absolute and relative, rose. It fell only
slightly during the war years, in spite of conscription and the mobiliza-
tion of industry. Unemployment in periods of depression showed the
greatest increase, rising from 10.7% in 1907-09 to 15.9% in 1914-15.

241

242

The Decline of American Capitalism

TABLE

III

The

Upward Trend

of Unemployment,

igoo-SS

YEARLY AVERAGE

PERCENT

CHARACTER

OF WORKERS *

OF WORKERS *

YEARS

OF PERIOD

UNEMPLOYED

UNEMPLOYED

1900-06

Prosperity

657,000

7.6

1907-09

Depression

1,091,000

10.7

I9IO-I3

Prosperity

877,000

7.9

I914-15

Depression

1,860,000

159

1916-20

Prosperity

817,000

6.4

1921-22

Depression

2,625,000

20.7

1923-26

Prosperity

1,149,000

9.0

1927-29

Prosperity

1,250,000

9-5

1930-33

Depression

5,400,000

35.2

• Includes workers in manufactures, coal mining, railroads, and the building trades.

Source: 1900 to 1926 — computed and rearranged, according to cyclical periods, from
statistics in Paul H. Douglas, Real Wages in the United States, i8go-ig26, p. 460; 1927
to 1933 — computed on the basis of statistics in Tables II and IV.

Usually unemployment was ascribed to unrestricted immigration,
which had been so important in American expansion. Yet after the
war, when immigration, now no longer economically necessary be-
cause of a declining rate of expansion, was severely restricted, normal
unemployment increased more rapidly than in the pre-war years.
In the depression of 1921-22, unemployment was twice as high as
in the depression of 1907-09 and nearly 50% higher than in that of
1914-15. Normal unemployment rose to 9% in 1923-26 and 9.5% in
1927-29, an increase of one-fifth over the two pre-war periods of
prosperity. The absolute number of unemployed workers in the pros-
perity years 1923-29 was greater than in the 1907-08 depression.
Average yearly unemployment during 1920-26 was 12.1% of the avail-
able workers, considerably higher than the 10.2% during the years
1897-1926.^ And for the four depression years 1930-33 average yearly
unemployment rose to 35.2% of the available industrial workers, over
three times as much as in 1907-09 and nearly twice as much as in
1921-22. . . .

The accelerated increase of normal unemployment in 1920-29 was
the result of a fundamental change in the American economy: for
the first time the rise in the productivity of labor was greater than
the rise in production. This condition is the basic cause of an abso-
lute displacement of workers.

A definite, if proportionally changing, relation exists between em-

Disemployment and Surplus Population 243

ployment and the productivity of labor and output. An increase in
productivity must be matched by a corresponding increase in output,
otherv^ise there is an absolute displacement of workers. But v^^here
formerly an X% increase in output v^as enough to absorb a certain
number of new workers, now, because of the higher productivity
of labor, a still greater increase in output is necessary. Production
must grow faster than productivity.*

If output rises more rapidly than the productivity of labor, there is a
relative but no absolute displacement of workers. The theoretically
displaced workers and new workers in addition are absorbed by the
expansion of production. (It also makes possible higher wages and
shorter hours.) Because the increases are not proportional, normal
unemployment tends to rise, but not much. This is the epoch of the
upswing of capitalism.

If, however, the productivity of labor rises more than output, the
tendency is toward an absolute displacement of workers. There is
an expansion of production, but not enough to absorb all the workers
displaced by higher productivity plus a part of the newly available
workers. Normal unemployment rises more rapidly.

If productivity rises more than output and, in addition, the move-
ment of production is downward, workers are displaced both by
higher productivity and lower output. Normal unemployment be-
comes constantly greater. (Wages tend toward lower levels; and while
hours of labor may not be lengthened, they are at least not shortened
in accord with technical-economic possibilities.) This is the epoch
of the decline of capitalism.

From 1899 to 1919, and in earlier years, output rose more than
the productivity of labor. In manufactures, in 1 899-1909, the increase
in output was 59%, in productivity only 16%; 2,182,427 new wage-
workers were absorbed. For the whole period 1 899-1919, the increase
in output was 59%, in productivity only 16%; 2,183,427 new wage-
workers were absorbed.* There was a similar trend on the railroads.

• Production, of course, includes the new industries. For the sake of simplification, the
factor of the distributive and service trades is excluded. Employment in these trades tends
to increase much more than in directly productive occupations (a great part of it is
wholly useless and parasitic). But the increase, as shown in 1923-29, is not great enough
to absorb all the available workers. In any event, employment in the distributive and
service trades is dependent primarily upon production, which supplies means of livelihood
for all occupations. As a sop to its supporters, fascism tends to increase arbitrarily the
number of non-productive jobs; but this also is not enough to absorb all the unem-
ployed, there are definite limits to the creation of such jobs, and they multiply the
burdens imposed upon the workers employed in productive work.

244 T'he Decline of American Capitalism

In agriculture the movement of productivity and output w^as such
that only a small number of newr workers was absorbed, while in
mining (exclusive of oil wells) there was a small absolute displace-
ment. The expansion of production was enough to absorb most of
the available workers; there was only a small rise in normal unem-
ployment.

This relation was, however, completely reversed in 1919-29: the
productivity of labor rose more than output. The rise in the produc-
tivity of labor in manufactures was over 40%, in output only 38%.
Productivity rose 12.5% and output 2.5% on the railroads, and 30%
and 20% respectively in agriculture. There was a similar tendency
in mining. As the expansion of production was smaller than the
rise in the productivity of labor, an absolute displacement of 1,155,000
workers, wage and clerical, took place. Displacement was most severe
in agriculture; in this industry, for the whole period 1 899-1 929, pro-
ductivity rose over 61% and output not much more than 56%.^ The
expansion of production was great (although the rate of increase was
smaller than in 1900-14), but it was not enough to absorb any new
workers or even all of the displaced workers; hence normal unem-
ployment rose considerably.

Under capitalist conditions, an expansion of production depends
upon an increasing output and absorption of capital goods. It depends,
in other words, upon an increasing accumulation of capital; this
means that a constantly greater proportion of the workers are em-
ployed in the capital goods industries. But these industries, because
of the higher productivity of labor, displaced a large number of workers
in 1919-29, although the rate of increase in their output was greater
than in pre-war years. There was a similar displacement in mining.
Construction augmented its labor force by 320,000 workers. In all
branches there was a small net loss of workers in the production of
capital goods. And the higher composition of capital, made possible
by the greater output of capital goods, displaced many workers in
the industries producing consumption goods.*

In most of the European nations normal unemployment was aug-
mented both by the increasing productivity of labor and the down-
ward movement of production. . . . The tendency for productivity
to outstrip production was already manifest in the pre-war years.
Thus in Great Britain, in 1907-13, output in basic industries rose
7% and trade-union employment only 0.5%. ... In the pre-war

•This subject is discussed more fully in Chapter XVI, "The Economics of Tech-
nology."

1^.1%

FORMAL UNEMPLOYMBNT
/too -06
/9/0-/5

nOO n07 ISIO \<\\'\ |<^IG \^X\ 1^23 nz7 1^30

nofe iqo*^ ni3 isi5 isao nz2 i*?z4 )^z^ IS33

XI. UPWARD TREND OF UNEMPLOYMENT— 1900-33.

246 The Decline of American Capitalism

years, British unemployment averaged 500,000, or 5%, yearly; it was
1,450,000, or 12%, in the post-war years (before 1929). The output
of mines and quarries was slightly higher in 1930 than in 1925, but
20% fewer workers were employed. In ten industries, an 11% increase
in output was accompanied by an 8% decrease in workers. The ele-
ment of British economic decline appears clearly in the fact that
the number of workers employed in the export industries was 2,465,000
in 1907, 2,485,000 in 1924, and 2,000,000 in 1930; their proportion to
the total workers in manufactures fell from 44% in 1907 to 38%
in 1924 and 33% in 1930. . . . Trade-union unemployment in Ger-
many rose from a yearly average of 2.3% in 1907-13 to over 11%
in 1923-27, and from 11.1% in 1927 to 20.7% in 1929. The former
relation between productivity and output was reversed. Productivity
rose 23% in the "boom" years 1925-27, and output 24%. In 1930,
of 1,500,000 unemployed workers, 1,000,000 had been displaced by the
higher productivity of labor and 500,000 by the lower level of pro-
duction. ... In the prosperous year of 1929, according to the Inter-
national Labour Office, 3,258,000 workers were unemployed in Ger-
many, Great Britain, and Italy. Total unemployment in the capitalist
nations of Europe rose from 3,616,000 in 1923 to 4,330,000 in 1929, an
increase of 20%.*^ . . . But the official unemployment figures are under-
estimates. Some include only those "on relief," others only those regis-
tered at the labor exchanges. It is probable that over 4,000,000 workers
were unemployed in Britain, Germany, and Italy, and 6,000,000 in
all Europe.

The same factors underlying the increase in normal unemployment
also produce an increase in cyclical unemployment. The tendency of
productivity to rise more than output is aggravated by industrial
breakdown. In Germany, the productivity of labor was 17% higher
in 1932 than in 1929, and output 40% lower. In the United States,
according to the National Bureau of Economic Research, productivity
per man hour rose 12% in 1929-32.^ Workers were thrown out of
work both by the higher productivity of labor and the lower level
of production. The output of capital goods, whose decreasing rate
of labor absorption accelerates the rise in normal unemployment, now
falls more in depression than formerly because of higher produc-
tivity, the more disastrous nature of cyclical breakdown, and the
lower demand for capital goods. And the output of luxury and
durable consumption goods, upon which prosperity increasingly de-
pends, falls in depression in about the same ratio as the output of

Disemployment and Surplus Population 247

capital goods. Thus, as prosperity becomes more unstable, depression
tends to become more severe.

The depression which set in after 1929 augmented unemployment
steadily and on an unprecedented scale.* During 1932, average un-
employment in Germany affected 5,579,858 workers, 30.2% of the
available labor force; of the trade-unionists 43.8% were wholly un-
employed and 22.6% partly unemployed. In Great Britain 2,272,590
workers or 17.6% were wholly unemployed, and 573,805 workers or
4.5°^ partly unemployed. Fascist Italy, whose statistics are notoriously
unreliable, officially admitted the existence of 1,040,910 jobless workers.
In all of capitalist Europe, average unemployment during 1932 was
12,178,000, exclusive of part-time workers. But these are the official
figures, which are not inclusive. In Germany, for example, there were
in December, 1932, probably 3,400,000 unregistered unemployed.® Ac-
tual unemployment in Europe was over 20,000,000. Never before
had cyclical depression afflicted such a large proportion of the working
population.

Still greater was the rise of unemployment in the United States.
During 1930, when, because of the illusions of prosperity everlasting,
the masters of industry, finance, and politics simply couldn't believe
there was a depression, unemployment rose to 5,000,000, compared
with half that amount in 1929. It kept on rising. In manufactures
alone there were 2,327,000 fewer workers employed in 1931 than
two years earlier,® while total unemployment rose to 8,250,000. But

* Except in the Soviet Union, which passed through the "years of world depression
apparently with comparatively small loss, continuing, indeed, to new and greater gains.
. . . Standards of living are debatable, always, but in the present instance can hardly be
considered as other than improved. The average real wage of the industrial worker cer-
tainly has been improved and that with the hours of work reduced. . . . The result of
the experience of Soviet Russia would seem to be primarily twofold: the leveling of
distribution and a new control over economic forces. It is not argued that the effects of
the world depression have not been felt there. Most certainly they have been, but not in
the production processes, nor in employment; wages, also, have been maintained and
increased" Susan M. Kingsbury and Mildred Fairchild, "Employment and Unemploy-
ment in Pre-War and Soviet Russia," World Social Economic Congress, International
Unemployment (1931), p. 421. It is often said: "Of course the Soviet Union has no
depression and no unemployment; that country is industrializing itself, and work is more
plentiful than workers." This is an obviously wrong argument. Every capitalist country
has had depressions and a resulting increase in unemployment during its period of
industrialization: in the United States there were three major depressions from 1837 to
1873. The element of socialist planning and control makes the difference. Cyclical crisis
and breakdown is a function of the contradictions and antagonisms of capitalist produc-
tion, not of industrialization (or of industrialism itself).

248 The Decline of American Capitalism

this was only a midway point. By the spring of 1933, the lowest depth
of the depression, unemployment in all occupations had reached the
staggering total of 17,252,000 (Table IV), an increase of 14,750,000
over 1929. The blight of unemployment fell upon 35% of the gain-
fully occupied : 14,252,000 or nearly 50% of the wage- workers, 2,000,000

TABLE IV

Unemployment,

All

Occupations,

Spring, I9SS

GROUP

UNEMPLOYED

Manufactures

4,561,000

Transportation*

1,684,000

Building Trades*

2,057,000

Mining*

524,000

Agriculture

1,786,000

Trade

1,613,000

Personal Service

1,692,000

Professional Service

363,000

All Other

972,000

Total

15,252,000

Additional

2,000,000

Grand Total

17,252,000

• These classifications differ from those in previous tables. Transportation includes
telephones and telegraph, garages, service stations, street railw^ays, and buses; building
trades includes w^orkers who are not engaged directly on new construction; mining in-
cludes oil and gas wells.

Source: For November, 1932 Business Wee\ (January 18, 1933) estimated unemploy-
ment at 15,252,000. But its starting point was a Federal Census estimate of unemploy-
ment (3,700,000) for April, 1930, which was too small by about 750,000. And Business
Week, made no allowance for new workers seeking employment, which may be conserva-
tively estimated at 750,000. An additional 500,000 is included to allow for the increase
in unemployment from November, 1932 to March, 1933. These revisions would raise
the number of unemployed in professional occupations to 500,000.

or 40% of the clerical workers, and 500,000 or 15% of the persons
in professional occupations. (Unemployment among professionals is
not a complete measure of their plight, as those independently occu-
pied, such as architects, physicians, and dentists, might not be unem-
ployed and yet suffer keenly from the depression.) Just as normal
unemployment in 1923-29 was greater than in any previous period
of prosperity, so cyclical unemployment was greater than in any
previous depression. This is progress in the epoch of the decline of
capitalism.

Disemployment and Surplus Population 249

In addition to wholly jobless workers, other millions were working
only part time. This was due to the generosity o£ employers, who
"made" work by "staggering" and "spreading" employment, thereby
throwing the burdens of the crisis upon the employed workers. In
January, 1933, 20% of the members of the American Federation of
Labor were working part time.^° The animus of the employers was
thus frankly admitted by Virgil Jordan, editor of Business Wee\: "The
spread-work movement will probably gain momentum as a means
of shifting the burdens of unemployment relief from income to
wages." ^^

Because of the severity of the crisis (typical of the decline of cap-
italism), unemployment swooped down mercilessly on professional
and clerical workers. ... A survey by Columbia University in 1933
showed unemployment as high as 98% among architects, 85% among
engineers, and 65% among chemists. . . . Five societies of engineers
in 1 93 1 formed a national committee to aid their jobless; within
one year they had spent 1441,737, of which $307,119 was in the form
of wages on "made" work paid for by semi-public bodies, the balance
in cash, old clothes, and other relief. . . . Unemployment was intensi-
fied among musicians, 9,885 or 50% of whom had been displaced
in motion picture theaters by the sound films. ... In New York City,
40% of those seeking jobs from the Emergency Work and Relief
Bureau were "white collar" workers, including executives, technicians,
statisticians, editors, efficiency experts, engineers, and personnel man-
agers. . . . An executive of a New York employment agency said in
1932: "Employment conditions among 'white collar' women are so
appalling this fall that I haven't the heart to think about them from
a statistical angle." ... A survey in 1933 of 3,000 charity patients
in New York City hospitals showed that 175 were professional workers
and 430 clerical workers, a greater proportion than in previous years
of patients who are called the "new poor." ^^ . . . The tremendous in-
crease in the number of jobless "white collar" workers is not only
a necessary result of greater unemployment among wage-workers,
upon whose employment, in final analysis, depends the employment
of "white collar" workers. Their situation is aggravated by the over-
crowding of clerical and professional occupations, a condition which
developed ominously during the pre-1929 prosperity. The "scarcity
value" of the "educated" workers is no more; for, turned out by
mass production methods, their numbers increase while the oppor-
tunities of finding work decrease.

The need for relief was great. ... In October, 1930, President

250 The Decline of American Capitalism

Hoover at the convention of the American Federation of Labor
condemned unemployment insurance as involving "doles of various
kinds w^hich limit the independence of men." The condemnation,
according to the New York Times, 'Vas particularly pleasing to
some of the Federation leaders, who are opposed to compulsory un-
employment insurance under Federal or state supervision." . . . Three
days later, William Green, the Federation's president, urged govern-
ment officials to prepare winter relief for the unemployed. And Hoover
set machinery in motion to "coordinate" relief in the form of charity.
No doles! ... It was charity of the most demoralizing kind. . . .
Arthur .Woods, chief of the President's Emergency Committee for
Unemployment Relief, broadcast appeals for money: "Increased funds
for local relief are needed if human misery is to be prevented. Hos-
pitals and dispensaries must receive more free patients; children's
organizations will be crowded as broken homes are increasing." (In
New York City, in 1930, evictions increased 30%, children in institu-
tions 12%, and foundlings 100%. ) . . . Workers, with lower earnings,
were forced to contribute to money-raising drives, public school teach-
ers to pay for free lunches to children. . . . For the first time women
and children appeared in breadlines. "We must," urged Grace Abbott
of the United States Children's Bureau, "get the children out of the
breadlines." . . . Two years later she added: "Relief agencies have
been unable to meet the needs of those dependent in cities and
towns and able to give little or no assistance to small mining com-
munities, where undernourishment among children is widespread."
. . . Relief was niggardly, ungracious, humiliating. ... It was par-
ticularly so in the case of Negroes and "aliens." The aliens were
thrown out of jobs, denied relief. In New York City, the Emergency
Work Bureau discouraged the registration of Negroes, and few
of those who registered got jobs. . . . Needy families were told to
go to the police, who gave them a basket of food once a week,
old clothes, occasionally some money for rent. . . . Charitable persons
organized more, bigger, and better breadlines. . . . Hotels, restaurants,
and produce merchants gave waste food to the needy, and bakeries
gave stale bread. . . . Garbage cans were ransacked at night. . . .
One man made it a business to hand out a batch of nickels to ap-
plicants and the advice: "Have the will to do, have patience, have
hope, place your faith in God, and you will come out on top." . . .
Unemployed workers sold apples on the streets of New York, and
wholesale prices went up in a few days. . . . Well-to-do women
(some of them!) made clothes for the children of the unemployed.

Disemployment and Surplus Population 251

. . . The President's Emergency Committee for Unemployment Relief
made much pother about "providing employment" — the old, old appeal
to "make" work. . . . Employers were begged to "stretch matters
a little to give added employment for a few months at least." This
was done by "spreading" work, taking from one worker to give to
another. . . . Corporations announced proudly that they would not
discharge any workers; investigation revealed they had either had
no decrease or an increase in business. . . . Department stores "helped"
by advertising that they had hired new salespeople — during the few
days of a special sale, workers they would have hired anyway. . . .
The housewife was asked to "study her budget, find out what she
can aflford to do in the matter of advancing work to be done in
her home, and then have it attended to immediately." . . . Rich men
were implored to build rock gardens and yachts to "make jobs" and
revive prosperity. . . . Some unions made their working members
take time off one or two days a week to make work for the unem-
ployed. . . . The Federal government rejected pleas for direct relief
to the jobless workers. It was contrary to the American traditions
of rugged individualism. (Apparently rugged individualism was not
menaced by the doles of local government relief and charity.) The
government instead issued considerable publicity on new public
works construction, adding, however, that "a long time is required
to prepare construction work." ... By January, 1932, millions were
starving or approaching starvation, 500,000 in Chicago alone. . . .
Meanwhile the unemployed were becoming more and more resentful,
more and more desperate. Demonstrations of the jobless, in many
of which the communists had the leadership, broke loose all over the
country. . . . They were met with the hatred of the well-to-do. The
workers in one such demonstration in Seattle were called "bums"
by a prominent businessman, "hobos" by a lady active in social afJairs,
and "criminals" by a millionaire factory owner in an address to his
employees. . . . Henry Ford said: "Men who want work can get
it." . . . The communists, whose idea spread, started the Unemployed
Councils, to carry on an aggressive struggle for relief and social insur-
ance; organized state and national hunger marches, dramatized the
plight and will to struggle of the unemployed. . . . Demonstrations
and hunger marches were answered with clubs, bullets, and tear gas,
brutally revealing the repressive class nature of the state. . . . The
Federal government deported 18,000 aliens in 1931, many of them
because they were radicals or took active part in demonstrations and
strikes. . . . The upflare of lynchings of Negroes in the South was

252 The Decline of Americain Capitalism

not disconnected with the depression and unemployment. . . . Farmers
organized resistance to foreclosures, went on strikes, demanded mora-
toriums on debts and the end of foreclosures, tax sales, and evictions.
... In 1931, the Illinois National Guard issued the following docu-
ment to its members: "Blank cartridges should never be fired at a
mob. When troops of the National Guard are ordered on active
duty to suppress domestic disorders, under no circumstances will blan\
ammunition he issued to them. Never fire over the heads of rioters.
The aim should be low, with full charge and the battle sight. Officers
and men should not fear reprisal in case one or more people are
killed. Officers of troops aiding civil authorities should not permit
the latter to indicate how their duties should be performed" ... A
survey by the United States Public Health Service showed that in
1932 one-fifth of a representative group o£ wage- worker families were
"on relief." It was niggardly enough, this relief: some jobs on "made"
work, some food, some rent money; and many didn't even get that.
. . . According to the Children's Bureau, one-fifth of the children
in the country "are showing the effects of poor nutrition, of inade-
quate housing, of lack of medical care, of anxiety and insecurity.
In some regions, without question, the proportion of below par chil-
dren is far greater, reaching truly appalling figures." . . . Conditions
among the unemployed had become unbearable by 1933. In January,
William Green denounced "the money-fat enemies of America, who,
through one device or another, have wrung from the people such a
proportion of the fruit of their toil that they are stranded in a motion-
less sea of depression. After three years of suffering we, the organized
workers, declare to the world: 'Enough. We shall use our might to
compel the plain remedies withheld by those whose misfeasance has
caused our woe.'" . . . All Green asked was a small Federal relief
appropriation. But such talk by a conservative labor leader was a
reflection of the underlying resentment and pressure of the masses.
. . . The efforts of the government, of Niraism, to "revive" industry
in 1933 by pouring billions into private enterprise had to include
some measures of aid for the unemployed. The masses were des-
perate. The sight of billions going to corporations and nothing to
themselves would inflame their desperation. Moreover, local govern-
ments, which had borne the burden of what relief there was, were
virtually bankrupt; Federal aid for the unemployed was in a sense
a measure of financial relief for the local governments. ... In October,
1933, according to the Federal Emergency Relief Administration,
3,143,678 families were "on relief," 12,500,000 persons, including 5,500,-

Disemployment and Surplus Population 253

000 children. Millions more were on local relief or no relief at all.
And the Federal appropriation for relief was a small part of the
billions spent by Niraism/^

Employment reached its lowest point in March, 1933. It rose there-
after because of the inflationary stimulus to production, and reached
a high point in July; but output and profits rose more than jobs
and wages. After July, the NRA got into action, and there were
some small gains in employment. But by November only 3,500,000
more persons were at work than in March. Nearly all the increase
under NRA, moreover, was mere "spreading" of work. Employment
in the iron and steel industry was higher in October than in preceding
months, but hours worked decreased and average monthly earnings
were only $91. In 312 New England factories, 90% operating under
NRA codes, employment rose 20.7% from June to October, but man
hours rose only 1.3% and average weekly hours worked decreased
16%. And in New York City, according to the NRA Administrator,
employment rose 20% from August i to November i, but payrolls
rose only 13%, indicating an increase in part-time work (and lower
wages). Then employment again slumped disastrously. From mid-
October to mid-November 580,000 workers lost their jobs, 330,000
in manufactures alone. In December the United States Department
of Labor reported a decrease of 113,000 workers in manufactures;
and the Department's survey includes less than half of the manu-
facturing industries. The percentage of decrease was greater than
the average for the ten-year period 192^-33- The rise in total em-
ployment dwindled to less than 2,500,000. All the gains made after
the NRA got into action were wiped out. And average unemploy-
ment was higher in /pjj than in 1932. According to the American
Federation of Labor it rose from 11,489,000 to 11,888,000.^* (These
figures minimize total unemployment; they underestimate the num-
ber of the jobless in 1930, the starting point of the calculation, the
increase in newly available workers, and the unemployment in agri-
cultural and professional occupations.) In January, 1934, over 15,000,000
persons were still unemployed, including those engaged on temporary
"made work" provided by the Civil Works Administration as a sub-
stitute for direct relief.

The unprecedented mass of cyclical unemployment, its great rela-
tive increase over previous depressions, and the inability to restore
prosperity on any considerable scale, all indubitably forecast a tre-
mendous rise in normal unemployment. Productivity is grov^ing at
an accelerated rate. The National Bureau of Economic Research esti-

254 The Decline of American Capitalism

mates that man-hour productivity rose 12% in 1929-32 compared
with only 7% in 1927-29/^ In some cases the increase is much greater;
thus man-hour output in the manufacture of pneumatic tires was
34% higher in 1931 than in 1929/^ Total average unemployment in
^933 ^^^ ^% higher than in 1932, yet, according to the Federal Reserve
Board, production and trade rose 10%}'^ The displacement of labor
goes on; and as the tendency of production must be downward after
revival, while productivity moves upward, absolute displacement will
take place on an increasingly larger scale. One estimate is that if
production in 1934 reaches the 1923-25 level, with the average work
week reduced to forty hours and no further rise in the productivity
of labor, 12,200,000 wage and clerical workers will still be jobless,
a total which may be reduced by part-time work; if the 35-hour week
is introduced, the unemployed will still number 9,000,000, which
would become greater if the productivity of labor rises.^® If produc-
tion reaches the 1929 level, 4,000,000 workers, according to General
Hugh Johnson, NRA Administrator, will still be jobless.^^ But that
is an underestimate. It forgets that the unemployed workers in 1929
numbered 2,500,000, and makes too small an allowance for the rising
productivity of labor and the new workers coming into the labor
market. Production at the 1929 level, not an immediate expectation,
would involve the unemployment of 7,000,000 to 9,000,000 workers.*
It is absolutely certain that there will be a tremendous increase in
"normal" unemployment. The surplus population must grow, an in-
creasing mass of workers for whom capitalist production cannot pro-

• The social-economic losses of unemployment are tremendous. A worker in manu-
factures in 1929 produced $5,330 (unduplicated value) worth of commodities. If, in
1923-29, 1,000,000 of the unemployed workers had been put to work on some of the
unused capacity, they would have produced an output of $37,000 million. If 500,000
more workers, who were available, had been working on construction, they would have
produced around $7,500 million (excluding value of materials) of new housing. If in
1930-33 manufactures had employed 4,000,000 unemployed workers, they would have
produced an output of $60,000 million. Unemployed construction workers involved loss
of an output of $15,000 million. This rough calculation indicates a wastage, in 1923-33,
of $120,000 million in goods which might have been produced. That is two and one-half
times the combined value of manufactures and construction in 1929. And it does not
include services which might have been performed. Nor other forms of waste. There is
tremendous waste in the production of useless and shoddy goods and services, and in the
growth of non-productive occupations; millions of workers might be released for socially
useful labor. And it is notorious that capitalist industry, in spite of its excess capacity,,
docs not always utilize the newest and most efficient technology. The social-economic
losses o£ unemployment become increasingly greater in the epoch of the decline of
capitalism. Industry can easily wipe out poverty; capitaUsm retains the abomination.

Disemployment and Surplus Population 255

vide work. Marx thus described the underlying causes of the surplus
population :

"The working population, while efiFecting the accumulation of
capital, also produces the means whereby it is itself rendered relatively
superfluous, is turned into a relatively superfluous population; and it
does so to an ever increasing extent. . . . The supplementary capital
formed in the course of normal accumulation serves chiefly as means
for the utilization of new inventions and discoveries, especially of ad-
vances in industrial technique. But, as time passes, the moment neces-
sarily comes when the old capital renews its head and limbs, sheds its
skin, and is reborn with a perfected technique, so that a comparatively
small quantity of labor will thenceforward suffice to set a comparatively
large quantity of machinery and raw materials in motion. . . . The
supplementary capital formed in the course of accumulation attracts
fewer and fewer workers; the old capital, periodically reproduced with
a new composition, tends more and more to repel workers whom it
used to employ. . . . The demand for labor falls progressively as the
total capital increases. . . . An accelerated accumulation of that capital
(accelerated in geometric proportion) is needed to absorb an additional
number of workers, or even, on account of the continuous metamor-
phosis of the old capital, to keep in employment those already at work.
. . . Capitalist accumulation constantly produces, and produces in di-
rect proportion to its energy and its extent, a relatively redundant popu-
lation of workers — a surplus population . . . promoting capitalist
accumulation and indeed a necessary condition of the existence of the
capitalist method of production.* It forms an available industrial
reserve army which belongs to capital for its own varying needs in the
way of self-expansion ... an ever-ready supply of human material
fit for exploitation. As accumulation proceeds, and as the accompany-
ing development in the productivity of labor takes place, capital's
power of sudden expansion grows. . . . The mass of social wealth,
become superabundant owing to the advance of accumulation, and
transformable into additional capital, urgently seeks investment, either
in old branches of production for whose products the market has
suddenly expanded, or else in newly formed branches the need for
which has grown out of the development of the old ones. In all such
cases, it is essential that there should be a possibility of providing great

• Marx quotes David Ricardo: "The same cause which may increase the net revenue
of the country, may at the same time render the population redundant, and deteriorate
the condition of the laborer." With increase of capital "the demand for labor will be in
diminishing ratio." Marx, Capital, v. I, p. 697.

256 The Decline of American Capitalism

masses of workers whose activities can be engaged at the decisive points
without any interruption in the work o£ production in other spheres.
... A sudden and fitful expansion is a prelude to equally sudden
and fitful contractions. The latter, in turn, evoke the former; but the
former, the expansions, are impossible unless there is available human
material, unless there has been an increase in the number of available
workers irrespective of the absolute growth in population. This supply
of available human material is dependent upon the simple fact that
some of the workers are continually 'being set at liberty' by methods
which reduce the number of employed workers. . . . The production
of a relatively superfluous population has become an indispensable
condition of modern industry. The greater the social wealth, the
amount of capital at work, the extent and energy o£ its growth,
and the greater, therefore, the absolute size of the proletariat and the
productivity of its labor, the larger is the industrial reserve army. The
available labor power has its extent promoted by the same causes
which promote the expansive force of capital. Consequently the rela-
tive magnitude of the industrial reserve army increases as wealth
increases. But the larger the reserve army as compared with the active
labor army, the larger is the mass of the consolidated surplus popula-
tion, whose poverty is in inverse ratio to its torment of labor. Finally,
the larger the Lazarus stratum of the working class and the larger
the industrial reserve army, the larger, too, is the army of those who are
officially paupers." ^°

Marx added: "This is the absolute law of capitalist accumulation.
Like all other laws, it is modified by numerous considerations." The
most important consideration is the rate of expansion in production.
(Another consideration is the growth of non-productive occupations.)
If, as in the epoch of the upswing of capitalism, production rises more
than the productivity of labor, the surplus population grows, but
slowly. It grows rapidly in the epoch of the decline of capitalism, be-
cause the rate of expansion in production falls while productivity rises;
and it grows still more rapidly if there is an absolute downward tend-
ency in production.

The Marxist theory of an increasing surplus population was (and is!)
scorned by bourgeois economists, by the post-Ricardian epigones.
"Look," they said, "look at the constantly greater number of workers."
But they ignored the increase in normal unemployment, in the inse-
curity of work. Now the surplus population is so large that it must be
recognized and dealt with. In 1932, the British Royal Commission on
Unemployment Insurance admitted the existence of "an element

Disemployment and Surplus Population 257

of unemployment that is not temporary and will not disappear with
trade revival." It used such phrases as "persistent unemployment,"
"redundant element of workers," "surplus labor," and "excess of
workers." It accepted the fact of permanent unemployment:

"Until 1928 the view was taken that all or most unemployment was
due to trade depression of the ordinary type. Had this been the case,
its duration would have been limited, its incidence would have been
limited. ... It is now clear that the greater part of the unemployment
of the period 1923 to 1929 was not due to trade depression, but was
of a more persistent character due to causes that were not transient.
... It is, of course, true that the present depression has involved
workers who have every prospect of re-employment when industry
generally improves. . . . But the difference remains that the unem-
ployment caused by trade depression will pass, while the other unem-
ployment will persist when trade improves, as it persisted through the
good years 1924, 1927 and 1928 . . . associated with some more per-
manent condition of British industry." ^^

The Commission on Unemployment Insurance estimated, for seven
industries with one-quarter of all the insured workers, an excess of
from 395,000 to 718,000 workers (out of a total of 3,264,000). It foresaw
the more or less permanent unemployment of 3,000,000 workers. The
Commission proposed, and the British government has since substan-
tially accepted the proposal, to "reform" the unemployment insurance
system, which has broken down because of the increase in "redundant"
and "excess" workers. The insurance system is to be made self-sup-
porting: it is to cover only employed workers who are temporarily
unemployed and only for so long a period as they have paid for with
contributions to the insurance fund; all other jobless workers, the
great majority, are to go upon poor relief. Even before the adoption
of the new system, "reductions in, and disallowances of, benefits"
had, according to the minority report of the Unemployment Commis-
sion, "caused a great increase in pauperism and vagrancy." ^^ "The
larger," in the words of Marx, "is the army of those who are officially
paupers." This is also true of Germany, Italy, and France, where most
of the aid for the unemployed is on the basis of poor (very poor!)
relief. Unemployment insurance in Germany is insignificant in com-
parison with "emergency relief" and "poor relief." An unemployed
worker must "prove" his right to relief, which was always small and
is still smaller under the brutal Hitler regime. In England, where
relief allowances are a bit larger than in the other three nations, the
minimum diet prescribed by the government for an unemployed

258 The Decline of American Capitalism

worker is less than that for soldiers and convicts; and in many areas,
the food expenditures of unemployed and part-time workers are far
below even the government's low minimum ration.^^

These conditions of constantly greater unemployment and mass
pauperization appeared in capitalist Europe before the depression
which began in 1929. They have since appeared in the United States,
after gathering force during the flourishing prosperity of 1923-29.
One of the worst by-products is the growth of an army of homeless
children. They are larger in number than in the period after the
Civil War, when, according to a conservative estimate of the New
York Times, there were in New York City alone 10,000 completely
homeless children, "exposed to incessant and overwhelming tempta-
tion, who suffer severely in winter and stormy weather — a fearful
mass of childish misery and crime." ^* In 1932, 200,000, probably 300,000
homeless youngsters, many of them girls, wandered over the high-
ways of the nation, "meagerly fed, scantily clothed, told endlessly to
'move on'. No use to go home — even if they could get there — for home
offers even less in sustenance than the open road. No jobs to be had
regularly. Few beds to sleep in, except the hard ground in tramp
'jungles' along the railroad tracks." Many are killed "stealing" rides on
trains. Others, as "criminal" vagabonds, are sentenced to serve in the
horrible chain-gangs of the South. The conversation of three of them is
revealing:

Tom [mournfully] : If I ever get home I'll just park.

Red [wistfully] : Y'oughta be glad you got a home.

Mike : I've got a home, but the folks don't want me. So I'm on my
way. What would you give for a dish of ice cream?

Red: Ice cream! I ain't seen any in months. ... I used to get a
job delivering for a butcher, but after my relations lost their jobs I
lost mine too. Guess they got tired of having me around when I didn't
make no money, so I thought I'd better leave. . . . Fun? [ruefully]
I ain't had no fun since I left school.^^

Now, when it is too late, American reformism, and this is char-
acteristic of it, proposes compulsory, self-supporting unemployment
insurance. In 1932, the Executive Council of the American Federation
of Labor, "with considerable reluctance, abandoned its long opposition
to compulsory state insurance," and its action was approved by the
convention. But the plan proposed was merely, "after a waiting period
of three weeks, to pay benefits for a maximum period of sixteen weeks
in a year based upon 50% of the normal weekly wages, but not to
exceed $15 a week."^^ Niggardly as it is, that plan might have been

Disemployment and Surplus Population 259

of value in the epoch of the upswing of capitalism, when unemploy-
ment in periods of prosperity was relatively small and temporary;
although the plan would have had little value in depression. But now
unemployment is increasingly permanent; it is ^//employment, a com-
plete separation of the worker from the job. This is most apparent
in the millions of young workers in Europe and the United States
who do not know work and have no chance to work, who merely
swell the surplus population. The permanently unemployed workers
are not covered by unemployment insurance; they are thrust upon
emergency or poor relief.* This appears clearly in the 1933 report of
the Secretary of Labor, Frances Perkins:

"Some form of unemployment reserves should be set up in the
different states so that in future it may take the place of the breadlines
or other charities. . . . No one has yet found a cure for unemploy-
ment. ... In urging unemployment reserves, I realize that adoption
would not mean the throwing up of economic bulwarks for all wage-
earners. . . . There should be a definite and fairly long waiting period.
The number of weeks of benefit should be limited to bear a definite
relationship to the amount of contributions made or the premiums
paid." "

That is a proposal to force the great majority of unemployed workers
to be satisfied with emergency or poor relief or no relief at all. This
is emphasized by the fact that in the reports of various state unem-
ployment commissions "there is," according to a member of the re-
search staff of the National Industrial Conference Board (an em-
ployers' organization), "a recognition that unemployment is not an
insurable risk, and the proposed plans are labeled 'unemployment
reserves.' . . . No provision is made for state contributions, no benefits
are paid after the reserve fund is exhausted, each employer is respon-
sible only for his own workers, and no attempt is made to 'insure'
against unemployment — that is, to give full security to the worker as
long as he is unemployed." ^^ Thus capitalism offers merely niggardly
relief or no relief at all to the surplus population for whom it cannot
provide work, and for whom there is small prospect that work will
ever be provided.

* Because of this, the working class must demand and struggle for real unemployment
insurance covering all forms of unemployment and all workers. The "white collar"
workers, whom mechanization and economic decline thrust increasingly into the surplus
population, must also demand real unemployment insurance, and become allies of the
wage-workers.

CHAPTER XVI

The Economics of Technology

il HE absolute displacement o£ labor by technological progress is not
a result of technology itself. "Technological unemployment" is a con-
venient term with, however, a limited application. In one sense, it
describes the unemployment of workers whom new machines have
deprived of jobs or skills or both. In another sense, it describes the
element in increasing unemployment which is brought about by im-
proved technological efficiency and not by a decrease in production.
But technological unemployment becomes permanent only if there is
an insufficient rate of expansion in production or if working hours
are not reduced in conformity with the higher productivity of labor,
both of which factors make it impossible for industry to absorb dis-
placed land newly available workers. Hence permanent unemploy-
ment, the surplus population, is essentially a social-economic problem,
not a technological one, and is the result of capitalist incapacity to
adjust consumption to production.

Yet technology is, within the limits of the social relations of capi-
talist production, a causal factor of first importance. It conditions the
whole process of production, including unemployment. Where the
rate of expansion is upward, industry might provide work for all
available workers if technological efficiency did not disproportionately
raise the productivity of labor. Where the rate of expansion is down-
ward, as in depression and in the epoch of capitalist decline, tech-
nological displacement of labor adds to the unemployment already
created by the lower level of production. Technology is an accelerat-
ing factor in economic development. It has, moreover, an antagonistic
and disruptive impact on capitalist production, which has allowed
technology to become a demon it cannot control.

But this must be true only because of the black magic of capitalist
decline. For technology is a part of the progress of mankind, since
man is a tool-making and tool-using animal. When it was crude and
empirical, technology was dwarfed by the natural environment. Its
development strengthened man's control over natural forces and,
consequently, his capacity to produce. When technology, under capi-
talism, became the purposive application of science to industry, it

260

The Economics of Technology 261

resulted in an enormous increase of the productive forces o£ society
and of man's mastery over nature. Now^ these developments are un-
dermining capitalism. Technology is being limited in its progress
and uncontrolled in its results. The great productive forces of society
bring permanent unemployment and w^ant in the midst of plenty.
And the mastery of natural forces threatens universal ruin because of
its use for destructive purposes of w^ar. Thus capitalism reacts against
progress. It makes necessary a new social order in which technology,
stripped of its capitalist limitations, becomes more fully and creatively
the purposive application of science and the means of man's mastery
over his environment and himself.* . . .

As the mechanical equipment of production, materials, and
processes, and the accumulation of technical knowledge and skills,
technology is the basis of industry. It determines the material relations
of production; and it influences, but is itself also influenced by, the
prevailing property, class, and social relations. The mode of produc-
tion as a whole is decisive, and not its technology. Thus technology is
not an independent but an historical factor; its forms, development,
and uses are interlocked with the social-economic relations of produc-
tion. It is the mode of production as a whole which is decisive, and not
merely its technology. The emphasis on technology as an independent
factor distorts both the understanding of history and the understanding
of present-day problems.

The technology and economics of production inseparably condition

* "Technology reveals man's dealings with nature, discloses the direct productive
activities of his life, thus throwing light upon social relations and the resultant mental
conceptions. . . . Primarily, labor is a process going on between man and nature, a
process in which man, through his own activity, initiates, regulates and controls the
material reactions between himself and nature. He confronts nature as one of her own
forces, setting in motion arms and legs, head and hands, in order to appropriate nature's
productions in a form suitable to his own wants. By thus acting on the external world
and changing it, he at the same time changes his own nature. He develops the poten-
tialities that slumber within him, and subjects these inner forces to his own control.
. . . The labor process ends in the creation of something which, when the process
began, already existed in the worker's imagination, already existed in an ideal form.
What happens is, not merely that the worker brings about a change of form in natural
objects; at the same time, in the nature that exists apart from himself, he realizes his
own purpose, the purpose which gives the law to his activities, the purpose to which
he has to subordinate his own will. . . . He makes use of the mechanical, physical
and chemical properties of things as means of exerting power over other things, and
in order to make these other things subservient to his aims. . . . Thus nature becomes
an instrument of his activities with which he supplements his own bodily organs,
adding a cubit and more to his stature. Scripture notwithstanding." Karl Marx, Capital,
V. I, pp. 169-71, 393.

262 The Decline of American Capitalism

one another, but their relative importance varies in time and place.
Technology has acquired an accumulating influence. It was small in
primitive society, where man was dominated by his natural environ-
ment; yet even here man could not have become man without the
making and using of tools. In ancient civilizations, the slowness of
technological change was a primary cause of the slowness of social
change, which, with the contempt-for-work spirit of slave cultures,
hampered the development of technology. There was no direct tech-
nological influence on the great change in the mode of production
from slavery to serfdom; it was the result of the economic-political
breakdown of the Roman Empire, of slave agriculture having become
unprofitable, and of the introduction of new labor relations in agri-
culture. But technology tremendously influenced the coming of the
Renaissance and the commercial revolution. While the early Middle
Ages were retrogressive or stagnant in their technology and economy,
an increasing number of significant inventions and technical improve-
ments were developed from the tenth to the fourteenth century. There
were new forms of harnessing for work animals and an improved
plow; wind and water mills, mechanical clocks, a new type of plane,
improved bellows, and better construction methods; the compass and
the steering rudder for ships; more efficient processes in metal work-
ing; many other improvements in tools and many new machines
(one, for example, to press the heads of pins and a silk-reeling machine
operated by a water wheel) ; the use of gunpowder and the casting of
increasingly larger cannon.^ Gunpowder and cannon "democratized"
war and had an explosive effect on the hierarchical organization of
society. The technical-economic changes led to division of labor and
specialization of crafts, stimulated the rise of industry, trade, and the
commercial bourgeoisie, and influenced social life and mental con-
ceptions by an increasing production and distribution of old and new
products. Improvements in tools and the construction of more complex
machines stimulated the rise of experimental science, of the practical
spirit of doing which is a characteristic of both science and the bour-
geoisie. Experimental science itself requires a technology. New vistas
opened up in all fields of life. All these changes merged into the com-
mercial revolution of the sixteenth and seventeenth centuries, which
was, however, essentially a social-economic, not a technological, proc-
ess. While it was accompanied by many improvements in tools and
machines, the distinctive features of the commercial revolution were
the growth of the trading class, increasing production for the market,
emergence of the class of "free" wage-workers, expropriation of the

The Economics of Technology 263

peasants from the soil and the creation of a labor reserve,* develop-
ment o£ the world market, breakdown o£ the system o£ independent
handicrafts and guilds, increasing division and specialization of labor
in the early factory system, and the rise of large-scale capitalist enter-
prise. These changes in the mode of production prepared the condi-
tions for the industrial revolution of the eighteenth century, in which
technology was relatively the most important factor. They developed
all the essential features of the factory system, whose basis is not
machinery but the speciaHzation and division of labor for more eco-
nomical production. All the fundamental social relations of capitalist
production — free wage labor, separation of the worker from the
means of production and their conversion into capital, the system of
production for profit, price and the market as "regulators" of industry
— conquered the older economic relations during the period of the
commercial revolution. The technological revolution of the eighteenth
century did not create the social relations dominating the devel-
opment and functioning of modern technology. It is these relations
which create the "technological" problems of to-day. Socialism means
a change in the social relations of production, not in its technology. . . .
Another aspect of the overemphasis on technology is the overem-
phasis on energy or power as the decisive factor in both technology
and economics. An American "technocrat" and professor of industrial
engineering says: "For a period of about 6,000 years, before the be-
ginning of the nineteenth century . . . civilization was dependent on
the energy of man power for the goods and services provided. . . .
From the technologist's point of view there was no social change
whatever during all this vast period of time. There was no change in
the rate of doing work." ^ But energy can no more be separated from
technology in general than technology can be separated from the mode
of production as a whole. During that "changeless" period of time,
man developed the basic features of technology, in the gradual im-
provement of his tools, materials, and processes. There were social

* The expropriation of peasants from the soil, by means of enclosures of the land and
with fire and sword, was particularly severe in England; but in other countries also it
was a factor in creating a mass of propertiless and helpless workers for the use of
capitalist enterprise. Dissolution of the monasteries, innumerable wars, and disruptions
of the guilds increased the number of beggars, orphans, and adventurers; many of these
were driven into factories or forced to work, unpaid, on the construction of roads by
savage decrees of the absolute monarchy. There was no expropriation of peasants from
the soil in the North American colonies, where land was abundant and free; indentured
labor was secured from helpless colonial orphans and from the mass of unfortunates in
England, but its conditions, while bad enough, were better than in Europe.

264 The Decline of American Capitalism

changes of the utmost importance. Even in the field of energy there
was the introduction and increasingly more efficient utilization of wind
and water power. Technology moved slowly, but it moved, augment-
ing man's control over nature and his capacity to produce. Without
the constantly greater accumulation of technical equipment and knowl-
edge from the thirteenth to the eighteenth century (including steam
engines used for pumping in mines), there could have been no devel-
opment of a new source of power. And the industrial revolution was
ushered in by fundamental changes in machinery, not in power.

The technology of tools and machines already in existence served
as the starting point for the development of new machinery which
culminated in the industrial revolution. An increasing construction of
larger and more complex machines improved mechanical engineering
and led to the technological application of scientific discoveries. In the
early factory system, where formerly independent craftsmen worked
together in one shop under control of a capitalist, tools were improved
and simplified, and many new forms of tools were created to meet
the requirements of increasing specialization and division of labor.
This simplification and multiplication in turn suggested the mechani-
cal combination of tools into machines. The early factory used con-
stantly more machinery, particularly in the making of metal products;
in one metal factory there was an imposing array of water-driven
slitting, pressing, shearing, and rolling machines.^

The machine of the industrial revolution was basically a contrivance
which mechanized existing tools and reproduced manual actions.'*
The tool formerly held and operated by the worker was incorporated
in the machine, thus combining and mechanically operating a number
of identical or similar tools. A machine might incorporate only a single
tool, but it increased the power, speed, accuracy, and capacity to pro-
duce. The manual actions of crocheting and knitting were mechani-
cally combined in the stocking knitting machine. Prior to the inven-
tion of spinning machinery the spinner held a single thread between
the thumb and forefinger; this was replaced by the movable carriage
in Hargreaves' spinning jenny. Mechanical substitutes for the human
fingers appeared again in the rollers of Arkwright's spinning frame,
which twisted the yarn as it was wound on the spindles. While the
machines of the industrial revolution were essentially mechanized
tools reproducing manual actions, this is true only in part and
frequently not at all of a whole series of machines created by later
technological developments, which also increased enormously the im-
portance of apparatus, a means of production totally dissimilar to

The Economics of Technology 265

machines and tools. As machines became more complex and heavier,
they stimulated the search for a new source of power. Water power
was used more and more, but it involved limitations in the location
of industry, and the relatively inefficient water wheels were incapable
of moving very heavy machinery. Newcomen's steam engine was
Hmited to pumping in mines, until Watt transformed it into a mechan-
ism which from reciprocating motion produced the rotary motion
necessary to drive machines. Human and water power were displaced.
A single prime mover was now able to supply power to several work-
ing machines; and the factory became a weird maze of belts, ropes,
and pulleys whirling overhead and alongside the machines. The steam
engine and the new and heavier machines it made possible required
large amounts of iron; this stimulated the development of new tech-
niques in metallurgy, a combination of mechanical and chemical im-
provements.

The final phase of the technological revolution was the great change
in metal working, in the production of means of production. Existing
metal-working machines were neither powerful enough nor accurate
enough to produce the precise parts needed for the new machines,
especially the steam engine. The creation of an industry manufactur-
ing the mechanical equipment of production, a basic necessity of the
new industrial capitalism, required making the construction of ma-
chinery itself a function of machinery, increasingly independent of
the skill and muscle of the worker. Machine tools, which shape metal
into wrought forms by bending, pressing, shearii^g, paring, and bor-
ing, had to become larger, more powerful, and of greater precision.
The trend of developments was symbolized in the slide rest, a device
replacing the highly skilled operator, who formerly held and guided
the cutting tool, with an ordinary worker who simply turned a screw
handle; and the worker himself was displaced when the slide rest
was made automatic. "This mechanical appliance does not replace
another tool but the human hand itself. . . . Thus it became possible
to produce the geometrical forms requisite for the individual parts
of machinery 'with the degree of ease, accuracy and speed that no
accumulated experience in the hand of the most skilled workman
could give.' " ^ The liberation of machine tools (and of machinery in
general) from the limitations of manual labor resulted in the trans-
formation or disappearance of the tool formerly operated by a skilled
worker. But the scope of labor was enlarged, quantitatively in the
performance of heavier work and qualitatively in greater accuracy.
Machinery did work which manual labor could not do and did better

266 The Decline of American Capitalism

the work which it could do. The construction of machinery became
increasingly dependent upon the "replacement of human force by the
forces of nature, and of rule-of-thumb methods by the purposive ap-
plication of natural science." ®

By the 1830's all the fundamental aspects, including the central one
of labor displacement, of the new technology were clearly evident,
particularly in England. All subsequent technological developments
have had essentially an accelerating and quantitative influence.

1. The progressive realization of the technical function of machinery
revolutionizes the relations between labor and production (and social-
economic relations in general), a development which increasingly
conditions the nature of machinery. The creation and improvement of
tools emphasized the primacy of manual labor in production; tech-
nology was essentially an accumulation of manual skills in operating
tools. But machinery transfers skill to the machine, and subordi-
nates the worker to the mechanical equipment of production; tech-
nology becomes essentially an accumulation of engineering knowledge
and skills, and of machines, apparatus, and processes which constantly
reduce the relative importance of manual skill and human labor.
The early factory, in contrast to the independent handicrafts, needed
and used large numbers of unskilled workers; they were greatly
augmented by the machinery of the industrial revolution, most evident
in the preference given to women and children in the textile mills.
New skills arose, especially in the construction of machinery; but
they, and unskilled workers in general, were gradually replaced by
semi-skilled labor as machines became more efficient and automatic.
The automatic principle, although at first imperfectly realized, is
inherent in machinery. And the automatic principle means not merely
the transfer of skill to the machine but eventually of all work itself.
The machine is an arrogant monster. It seeks to be sufficient unto
itself, to displace the human worker, and tends to make the worker a
technician who repairs, controls, and directs.

2. The new technology, with its constantly greater demands for
mechanical equipment and raw materials, profoundly altered the com-
position of capital. In the early factory system, in spite of the increasing
use of machines, the main element in production was still human labor;
the composition of capital was low, with a preponderance of variable
capital (wages) over constant capital (equipment and materials). Fac-
tories were small, moreover, and did not absorb any large amounts of
capital. And while the factory was increasing in importance, the "putting
out" system existed on a large scale. In this system, the craftsmen pro-

The Economics of Technology 267

vided their own tools and worked in their own homes; the commercial
capitalist, who marketed the product, supplied the raw materials but
did not invest capital in equipment and factory buildings. As a whole,
consequently, production needed little fixed capital. This was changed
by the technological revolution. Machinery and factory buildings made
larger investment in fixed capital necessary. The investment became
still larger as machines increased in size and number, with a correspond-
ing increase in the size of factories. More raw material was consumed
as the efficiency and the scale of production rose. Thus constant capital
was continuously augmented. There was an absolute increase in the
number of workers; but the rising productivity of labor brought about
a relative displacement of workers, and variable capital (wages) fell
steadily in relation to fixed capital, raw materials, and output.

3. The higher composition of capital necessarily meant an increasing
concentration of industry. This tendency appeared very early in the iron
and steel industry, which was transformed by the industrial revolution.
As fixed capital requirements grew rapidly, the formerly small and
decentralized concerns became larger and more integrated; they mined
ore and coal, smelted, refined, rolled, and slit the iron in its finished
forms.^ Profits were high, but competition was savage and failures
many; the industry started a series of amalgamations, increasing
both the scale of production and the fixed capital requirements. The
process of concentration went on inexorably, if unequally, in all branches
of industry, urged onward by the constantly greater scale of production,
the mounting capital requirements, and the intensification of competi-
tion, in which the bigger capitalist usually devoured the smaller. Con-
centration was encouraged by the increasing technological application
of science and its production of machines both more efficient and more
expensive. The mechanization and concentration of industry thrust
aside both the independent producer and the commercial capitalist.
Up to the industrial revolution, the commercial capitalist, who was
interested mainly in the marketing of goods, was dominant. He was
replaced by the industrial capitalist, who assumed responsibility for
the whole process of production. Small producers were either expro-
priated or permitted to survive only in comparatively unimportant
branches of industry. The middle class was transformed; one part
rose into the class of large industrial capitalists, who now dominated
the bourgeoisie, the other part became increasingly an intermediate,
subordinate class of petty traders, managerial (including technical)
employees in large-scale corporate enterprise, and professional work-
ers.

268 The Decline of Americaa Capitalism

4. The new technology raised the productivity of labor tremendously.
But it lagged behind the existing possibilities, national and interna-
tional. For the introduction of new machinery did not depend merely
upon its efficiency, but upon whether it saved enough in wages; in
other words, upon whether it aided the capitalist in the competitive
struggle and in the making of larger profits. England, moreover, tried
to monopolize the fruits of technological progress, to prevent other
countries sharing in them. The uneven development of capitalism
meant that at any particular time or place the utilization of new
machinery might not be profitable. "That is why to-day," Marx wrote,
"machines are sometimes invented in England which can only be put
to use in North America; just as, during the sixteenth and seventeenth
centuries, machines were invented in Germany which were only put
to use in Holland; and just as many French inventions of the
eighteenth century were only utilized in England. In the older coun-
tries, machinery, when employed in some branches of industry, creates
such a superfluity of labor ('redundancy of labor' is Ricardo's phrase)
in other branches, that in these the fall of wages below the value of
labor power hinders the use of machinery, and, from the standpoint
of capital, whose profit comes, not from a diminution of the labor
employed, but from a diminution of the labor paid for, renders that
use superfluous and often impossible. . . . Before the labor of women
and that of children under ten years of age was prohibited in mines,
the capitalists found the employment of naked women and girls, often
harnessed side by side with men, perfectly compatible with their moral
code, and still more compatible with satisfactory entries in their ledgers,
so that it was only after the prohibition had come into force that they
had recourse to machinery. The Yankees have invented a stone-breaking
machine. The English do not make use of it, because the 'wretch' [a
recognized term for the agricultural worker] who breaks stone by hand
is paid for so small a proportion of his labor that machinery would in-
crease the cost of production for the capitalist." ^ Nevertheless there was
a constant increase in the productivity of labor because of the introduc-
tion of new machinery. And out of this arose the problems which now,
in more acute form, torment capitalist industry. The development of
the productive forces outstripped consumption. Classes other than the
workers (including the old feudal aristocracy) gained most from the
higher output of industry. Cyclical crises and depressions made their
appearance, arising out of the dynamics of capitalist production itself.
England tried to overcome the contradictions by cultivating the export
markets, which did not abolish cyclical breakdowns but did accelerate

The Economics of Technology 269

capitalist development. One result, however, was mass starvation (par-
ticularly in the Hungry Forties) in the midst o£ relative plenty. Another
result was the overdevelopment of industrialism (and consequent ruin
of agriculture), which, "balanced" and profitable while England was
the world's workshop, was increasingly undermined by the progress
of international industrialization.

5. Agriculture was the stepchild of the new technical-economic de-
velopments. The expropriation of peasants from the soil had already
shown what capitalism had in store for workers on the land. The new
technology was used in a very niggardly fashion in European agricul-
ture, yet there was a great increase in productivity. Millions of farm
workers were displaced, a new expropriation of peasants from the soil.
They became the human raw material of the factory system or servants
of the well-to-do. And as immigrants they became manual workers
and servants in the United States. In spite of the limited use of the
new technology in agriculture, even among American farmers, there
was an increasing adoption of capitalist methods and concentration of
production. But agriculture lagged behind the general economic prog-
ress. It lagged because the older social-economic relations lingered
on, and because agriculture was exploited by capitalism. In the indus-
trial countries of Europe, especially England, agriculture was discour-
aged in favor of intensive industrialization, which based the national
economy on the export of manufactures and the import of agricultural
products. In the United States it took the form of forcing agricultural
expansion beyond the point where it was profitable, and using the
farmers' surplus to pay for the imports of capital necessary for rapid
industrialization. And the exploitation of agriculture forced colonial
and other economically backward countries to concentrate on the pro-
duction of one or two crops, in the interest of foreign capitalism, with
eventually disastrous results to the local economy. Technology, in the
form of improved agricultural implements and means of transporta-
tion, facilitated the exploitation of agriculture. The plight of world
agriculture to-day is the cumulative result of the whole development
of capitalist production.

6. All the developments of the industrial revolution, its transforma-
tion of the technological basis of production, contributed in one way
or another to the creation of a surplus population.. The beggars, vaga-
bonds, and adventurers, the outcasts of a feudal order which was break-
ing down from the fifteenth to the eighteenth centuries, were not a
true surplus population; this is shown by the measures adopted by the
absolute monarchy to force them to work, to develop a labor reserve

270 The Decline of American Capitalism

for capitalist enterprise. Changes in the composition of capital and the
resulting rise in the productivity of labor moved slow^ly, although
some v^orkers were displaced. The demand for labor usually exceeded
the supply. Where workers were unemployed it was mainly because of
the bad organization of the labor market. But the surplus population
arising after the industrial revolution was the direct result of the
workings of capitalist production itself. For industrial growth, the ex-
pansion of old and creation of new industries, required a large and
growing labor reserve. Labor was displaced by the higher composition
of capital. Productivity of labor, in general, rose faster than production.
The rise, moreover, was uneven, haphazard; workers displaced in one
industry were not absorbed by expansion in another. And, as yet, the
production of capital goods was not sufficiently developed to provide
employment for many workers. In addition to the displacement of
workers by more efficient mechanical equipment, there was more dis-
placement because of the barbarous exploitation of labor. Women and
children were increasingly employed in preference to men. The work-
ing time, which was predominantly ten hours daily in the England
of the seventeenth century, rose steadily as a result of the industrial
revolution; by 1800 the 14-hour day was customary and the 18-hour
day not unusual.^ The surplus population was augmented by peasants
who flocked to the towns looking for work. Wages fell under pressure
of unemployed men and working women and children. It was an
epoch of increasing misery for the working class.*

The earlier industrialism was marked by an absolute displacement
of labor and increasing misery among the workers. This was checked
in the epoch of the upswing of capitalism, from the 1850's to the 1890's.
In the more highly industrial countries working hours fell and
wages rose. Much of the newer and more complex technology, in con-
trast to the crude machines of the industrial revolution, was incom-

* For some years, research students have been trying to disprove that the industrial
revolution produced a surplus population and increasing misery from, say, 1750 on.
But this represents the necessity for being "original," where it is not sheer apologetics.
Conditions were, of course, not so bad in the United States prior to the Civil War, a
most important peculiarity in shaping American social development in general and the
labor movement in particular. The factory system expropriated the crafts of the artisans
and preferred to employ women, children, and orphans. But this development pro-
ceeded on a small scale, because industrialization was slow; and wages were relatively
high, a colonial heritage which persisted because, owing to continued existence of the free
lands of the frontier, wages tended to approximate the level of the farmers' income.
Under frontier conditions a surplus population, except in depressions, could not arise;
any surplus was absorbed in the westward migrations.

The Economics of Technology 271

patible with excessive fatigue. The miUtary and poHtical interests of
the state, moreover, required an improvement in the Hving conditions
of the workers. And the workers, organized by the mechanism of
capitahst production itself, forced other improvements through their
accumulation of economic and political power.

Lower working hours, more employment, and higher wages were
made possible by greater production, the rising productivity of labor,
and higher profits; in turn, these developments depended upon and
constantly augmented the output and absorption of capital goods. The
most important single factor in the increasing production of capital
goods, the basis of the capitalist upswing, was the technological revo-
lution in transportation. It flung, in addition to internal railroad con-
struction, a net of iron rails and iron ships around the world, and
absorbed more new capital and equipment than manufactures. (By
1890, American manufactures had $6,525 million of invested capital,
the railroads $7,577 million.) ^^ The construction of railroads in eco-
nomically backward countries, including Europe, was the most im-
portant aspect of the British export of capital in the 1840's and after.
But the revolution in transportation was even more significant than
the direct absorption of capital goods, for it broadened the world
market and the international basis of capitalism.* This enlarged the
scale of production, and the amount and efficiency of machinery, by
permitting the sale in foreign markets of surplus products which other-
wise would have saturated the home market and held back economic
and technical advance. In addition, recovery and prosperity after depres-
sion were frequently stimulated by new foreign markets and indus-
trialization overseas (or, in the case of the United States, in its own
continental areas), with its construction of railroads, urban transit,
public works, and factories, requiring heavy imports of building
materials and productive equipment from the more industrial na-
tions. Technology combined with other factors to initiate and sustain
the upswing of capitalism; for, unlike the tendency of to-day, new

* The downward curve of demand for new transportation equipment is one of the
elements of the decUne of capitaUsm. Shipbuilding has been one of the most de-
pressed industries since the World War. The motor truck and airplane, among the
most important of recent technological creations, have been economically insufficient
to offset the decrease in railroad construction. Yet the world's transportation net is incom-
plete, and there is abundant need for railroads, motor trucks, and airplanes in eco-
nomically backward countries. But these countries, under imperialist exploitation and
caught in the whirlpool of capitalist decline, are unable to develop their economic
possibilities. Their expansion or retrogression is interlocked with that of world
capitalism.

272 The Decline of American Capitalism

inventions did not merely improve the efficiency of existing equipment,
but revolutionized the technological basis o£ a w^hole series of old in-
dustries (ships, boots and shoes, glass, iron and steel, printing, food,
the use of metal in building construction), or created entirely new
industries (railroads, electric powder, telephones, pulp paper, urban elec-
tric transit). Underlying all these developments, in their influence on
employment and the surplus population, were two fundamental factors:

1. The rate of increase in production was greater than in the pro-
ductivity of labor. While in some cases productivity rose more than
production, this was offset by the general development, and particu-
larly the technical-economic creation of new industries.

2. The rate of growth in industries producing capital goods was
greater than in the industries producing consumption goods. The ef-
forts to raise the productivity of labor, the increasingly higher composi-
tion of capital, the enlargement of the scale of production, the revolution
in transportation, and the construction needs in new, undeveloped
areas — all these factors augmented the output and absorption of capital
goods, whose production required a constantly larger proportion of the
workers.

Because of these two factors, the displacement of labor was relative,
not absolute. The expansion of production in general, and of the indus-
tries producing capital goods in particular, absorbed the majority of
displaced and newly available workers. (Another, and increasingly im-
portant, factor was the growth of clerical, technical, and managerial
employees in corporate industry, and of professional and service occu-
pations.) The tendency toward the creation of a surplus population
was checked.

But it was checked only partly and temporarily. Workers displaced
by technological changes and the rising productivity of labor were not
absorbed until after an intervening period of unemployment; and many
of them, the highly skilled and the older workers, were either forced to
accept lower-paid jobs or thrown into the ranks of the unemployables.
Normal unemployment, the reserve army of labor, tended to rise, even
if not as rapidly as in the earlier industrialism. And in periods of de-
pression the tendency of capitalism to augment the surplus population
appeared in all its unanswerable and terrible reality : for there was both
an absolute and a relative increase in cyclical unemployment. The sur-
plus population expanded much more in depression than it contracted
in prosperity.

The partial and temporary check on the increase of the surplus popu-
lation was, moreover, limited to the highly industrial countries. It

The Economics of Technology 273

was, in large measure, the result of the exploitation of economically
backward peoples. The industrialization, after the 1850's, of agricul-
tural countries in Europe was distorted, made lopsided and incomplete,
by the pressure of the more highly capitalist countries, from whom
they imported goods and capital. Workers were displaced by the higher
productivity of labor, which rose more than production. Increasing
efficiency in agriculture displaced more workers than industry could
absorb.* Economic progress was sufficient to increase the population,
but not to provide all with work. Only the great migrations overseas
held the surplus population in check. Conditions were much worse in
such colonial and semi-colonial countries as India, China, and Mexico.
The import of foreign manufactures disrupted the native handicraft
economy, aggravated by the growth of local industrialism. Disrup-
tion appeared also in agriculture, because of the increase in efficiency
and the demand of the industrial nations for the production and export
of one or two particular crops. Workers were displaced on a large scale;
but industry could not absorb them, because its development was even
tnore incomplete than in the newer industrial nations of Europe. Nor
could emigration much reduce the surplus population, for most doors
were slammed in the faces of colored peoples. Worst of all, however,
were conditions in the tropical countries, in Africa and most of Latin-
America, in Malaysia and the Philippines. Natives were deprived of
land upon which their livelihood depended, an expropriation from the

• Intensive industrialization* in the Soviet Union is not accompanied by unemploy-
ment. Henry Hazlitt, "These Economic Experiments," American Mercury, February,
1934, pp. 141-42, says: "There is nothing particularly remarkable about an absence
of unemployment under any social system vi^hen an agricultural country is being rapidly
industrialized." Isn't there? All through the nineteenth century, unemployment v/zs
widespread in agricultural countries being industrialized. But perhaps Hazlitt stresses
the "rapidly." Nowhere was industrialization more rapid than in the United States
from i860 to 1900. Yet cyclical unemployment was greater than in earlier depres-
sions. Technological and normal unemployment both increased, and was higher than
in other countries. According to the Douglas estimates, unemployment in manufactures,
building trades, and transportation rose from 5.6% in 1889 to 7% in 1899. In countries
being industrialized to-day, unemployment moves in about the same manner as in the
more highly industrial countries. Trade union unemployment in Australia was 7%
in 1927, 11.1% in 1929, and 29.4% in 1932; in Canada, for the same years, it was
4-9%» 5-7%> and 22%. (International Labour Review, June, 1933, p. 809.) The implica-
tion of HazUtt's statement, moreover, is that unemployment must exist where indus-
trialization is not "rapid" or is measurably complete. But why, if not for the social rela-
tions of capitalist production? Industrialization in the Soviet Union, in comparison with
capitalist countries, is marked by a qualitative difference: a socialist planned economy,
where production for use and not for profit is the motive.

274 The Decline of American Capitalism

soil much more brutal than in the Europe of the commercial revolu-
tion, with the deliberate purpose of creating a labor reserve of "free"
workers. There was forced labor to build highways and railroads;
forced labor in the mines and on plantations. In spite of all the forced
labor, the surplus population grew. A handful of European nations
(Britain, France, Germany, Holland, Belgium) secured cheap foods
and raw materials, new markets for surplus goods and capital. But the
economically backward peoples paid in sweat and blood, although the
upper ruling layers shared in the spoils. All these developments, includ-
ing Congo atrocities, colonial revolts and wars, were a part of imperi-
aUsm, an essential element in the upswing of capitalism. But the up-
swing was, for the world as a whole, marked by growth of the surplus
population and increasing misery among the masses.

The technology of the upswing of capitalism, in addition to the revo-
lution in transportation, built upon and developed more fully the tech-
nology of the earlier industrialism. There was an increasing transfer
of skill, machines became more precise and automatic, and they made
larger capital investment necessary. These were universal trends, but
they were particularly marked in the United States. "The keynote of
the American development was mass production of standardized ar-
ticles, each part of which was made by machinery designed for one
task. Skilled labor was scarce; the frontier consumer wanted goods
which were cheap, serviceable, or labor saving rather than polished,
well finished and long of life. . . . The designing of special machines
which could be attended and fed by unskilled workers therefore became
the first manifestation of 'Yankee ingenuity.' " ^^

New and improved working machines were adopted in one branch
of manufactures after another. Not only were the earlier textile ma-
chines improved, but new machines were created for other phases of
the work, for mechanization of one process makes necessary the mech-
anization of other processes. The characteristic of the Jacquard loom,
whose system of cords simultaneously and automatically selected and
moved the needed warp threads, was incorporated in a large variety of
machines which performed mechanically all operations involved in the
production of textiles. A collateral development was the application of
machinery to the production of garments, initiated by the sewing ma-
chine. Starting with the invention of the skiving machine in 1845,
a mechanization of the skiving knife, the making of boots and shoes
was completely transformed by an intensive division of labor and spe-
cialization of machinery, based on one hundred operations and scores
of machines. The manufacture of pulp paper, while essentially a prod-

The Economics of Technology 275

uct of chemical research and its industrial application, required also
many new machines. By the 1870's, paper making was almost entirely
automatic. In a modern paper plant, the fluid pulp is fed in at one end
and emerges as rolled paper at the other — all operations are automatic
within the limits of the machine and apparatus. The making of steel
was rapidly mechanized by means of machines and apparatus of im-
mense size, complexity and capacity, forcing labor requirements down
to a minimum. Use of the regenerative furnace with the continuous
melting tank was followed by the mechanization of glassmaking and
the perfection of the astonishingly complex Owens automatic bottle
machine, which wiped out one of the most highly skilled groups of
craftsmen.''^ While the linotype machine replaced one skill with an-
other, the printing press developed to the point where all operations
are performed automatically by one giant machine. The canning of
foods involved the use of almost completely automatic cooking and
cooling apparatus, measuring devices, and can-packing machines. The
milling, measuring, and packing of flour was mechanized until only
a relatively trifling labor force was necessary. Workers were inexorably
displaced, not only by the transfer of skill but of labor itself to the
mechanical equipment of production, because of increasing realization
of the automatic principle. In addition, scores of devices for homes and
offices mechanized not merely manual skills but human intelligence,
as in the case of calculating machines. Scientific research became con-
stantly more technological, more and more organized on an industrial
basis in great laboratories with intricate mechanical equipment and the
division and specialization of labor. And the technological basis of
agriculture was revolutionized by machinery, which, starting with im-
provements in the older implements and tools and the invention of a
mechanical reaper, was augmented by an increasing variety of machines
and implements. (In addition, theie were advances in soil fertilization
and in plant breeding.)

The construction of more and more diversified machinery could not
have been accomplished without the greater automatization of machine
tools and advances in the manufacture of interchangeable parts, the

* The organized glass manufacturers of Europe prevented, for many years, the intro-
duction of the Owens machine because it was unprofitable. This is another illustration
of how social-economic relations condition technology, as the machine was profitable in
the United States because of the high wages of glassmaking craftsmen and the existence
of large markets which made economical large-scale production possible. It also illus-
trates how capitalist interests retard technological progress. In the United States as well
many machines were not used because they were unprofitable, although socially useful
and desirable.

276 The Decline of American Capitalism

basis of mass production. Profound changes took place in the machin-
ery industries from the 1850's to the 1890's, particularly in the United
States, whose machine tools began to invade the European markets.
While the parts of machines became more complex and varied, they
also acquired more regularity, and this created nev^ standards of pre-
cision for machine tools, indispensable in the production of interchange-
able parts. These standards were made possible by innumerable im-
provements in machine tools and particularly by the development of
the turret lathe, the universal milling machine, and the automatic screw
machine. The turret lathe enhanced precision and control. Constructed
in a variety o£ types, the universal milling machine displaced consider-
able manual labor, performed high quality work, and was peculiarly
adapted to mass production, since the rigidity of the cutting tool and
its multiple edges permitted accurate and cheap reproduction of shapes
and forms. The automatic screw machine, several of which could be
attended by one worker, meant production of cheaper and better
screws. Hand filing had been formerly necessary, but it was now done
more accurately and with less labor by improved machine tools. There
were many other great advances. New tools developed, among them
the pneumatic drill operated by compressed air and working at tremen-
dous speeds. Higher speeds and deeper cuts, more than doubling
the output of a machine, were made possible by the introduction of
high-speed steel after the i88o's; twenty years later machine-shop
practice was revolutionized by the growing use of alloy steel for cutting
tools. The greater the rigidity of the tool, the greater the precision and
automatic character of operation; hence the development of jigs, fix-
tures, and other appliances to guide the tool or hold the work in place.
Not only was machinery construction more purposively the techno-
logical application of science, it was increasingly liberated from the
limitations of manual labor.

The transfer of both skill and labor appeared most clearly in appa-
ratus, a means of production whose importance grew as the techno-
logical application of chemistry created new and modified old indus-
tries. Apparatus is most highly developed in the chemical industry with
its vats, pipes, and similar contrivances, but it is also of great impor-
tance in other industries which require one or more chemical processes.
It was first used on a large scale in the production and distribution of
gas, in the chemical industry itself, in metallurgy, the manufacture of
rubber, glass, and soap, the production of alloys, the refining of petro-
leum, and in electrolysis. With the development of synthetic products
(dyestuffs, pulp paper, cement, celluloid, nitrates, rayon, regenerated

The Economics of Technology 277

and artificial leather and rubber, distillates of coal), whose tech-
nology involves complex chemical action and precise control, apparatus
attained still greater significance. It makes usable formerly unused rav^
materials and makes possible new uses for many others; reproduces
rare materials or creates new ones by synthetic transformation of com-
mon and widespread raw materials. Apparatus, whose output may be
solid, liquid, or gaseous, produces a series of products, raw and finished,
beyond the capacity of machines, and takes on constantly greater im-
portance as production increasingly turns toward the synthetic.^^
(There are political aspects to this, in the efforts of nations to become
independent of foreign raw materials.) Very little labor is needed in
production by means of apparatus; it is highly automatic, the workers
are either unskilled or semi-skilled, and act under orders of a handful
of engineers whose work is also highly mechanized. More and more
the mechanical equipment of production assumes the form of ap-
paratus. This means a still higher composition of capital, driving
toward the absolute displacement of labor and aggravating all the
contradictions and antagonisms of capitalist production. Yet the
promise of apparatus is great. For it makes possible more abundance
— utilizing hitherto unusable and common raw materials, creating
cheaply many new products. And it liberates mankind from the
drudgery of production, lowering the amount of necessary labor and
transforming it into higher forms. . . .

More automatic machinery emphasized the transfer of skill and labor
and the specialization of machines. No more than average manual
dexterity, intelligence, and attention are necessary to "operate" auto-
matic machines. Although machines were built which performed all
operations needed to turn out one product, the tendency was toward
the specialization and seriaUzation of machines. The work to be done
was considered as a mechanical problem, split up into its separate and
constituent elements, with a series of machines for the different proc-
esses. The work "flowed" from operation to operation and from ma-
chine to machine; neither the worker nor the machine was the decisive
consideration but the work itself and its increasingly mechanical and
automatic performance. These technical developments were accom-
panied by the steady growth of mass production, with intensive
specialization and serialization involving the use of. considerable auxil-
iary appliances, particularly the automatic conveyor.

Technical-economic progress after the 1850's resulted in a constantly
greater investment of capital; in American manufactures it amounted
to $533 million in 1849 and $9,813 million in 1899. Capital investment

278 The Decline of American Capitalism

per worker rose from $557 to $1,840 and output per worker from $1,065
to $2,450. The number of workers rose from 957,000 to 5,306,000, an
increase of 454%, compared with 1,741% in capital and 1,043% in out-
put/^ Hence, although labor was relatively displaced on a large scale
by the higher composition of capital, there was no absolute displace-
ment because production tended to rise more than the productivity of
labor. In addition, millions of workers were absorbed by the tremen-
dous growth of transportation, construction, and agriculture, a direct
result of the inner continental areas (the American equivalent of
Europe's overseas markets),* whose development, moreover, provided
a vast internal market for consumption goods. Accumulation of capital,
the making of profits and their conversion into capital, was extremely
active. Not only did production rise more than productivity, but the
output of capital goods was constantly and greatly augmented, absorb-
ing relatively more workers than the industries producing consumption
goods.

All these conditions checked the tendency toward the creation of an
overlarge and threatening surplus population, in spite of the increase
in normal and cyclical unemployment. But the significant thing is
that a surplus population did appear: for it was practically non-existent
before the Civil War (except in its cyclical aspects), when technical-
economic changes were slow, industrialism was only acquiring mo-
mentum, and the new lands of the frontier offered more possibilities
of escape than after the 1870's. Unlike England, moreover, the Ameri-
can industrial revolution and the upswing of capitalism measurably
coincided in time, the conditions of one modifying those of the other.
Not only did a surplus population arise, it was greater than in the
industrial nations of Europe, Cyclical and normal, including techno-
logical, unemployment was an increasing torment to the workers, an
important cause of the labor discontent and struggles of the 1870's-
90's. The large surplus population did not create more unrest and
militant action because its composition was repeatedly changed by
immigration; only in depression was there prolonged unemployment
among the same groups of workers.

* It must not be assumed that foreign trade was not an important factor in American
economic development. It was. The United States, in spite of its peculiarities, was insepa-
rably bound up with the world market. Agriculture exported its surplus to Europe, with-
out which its expansion would have been Umited. Capital, raw materials, and manufac-
tures were imported, accelerating industrial development. After the 1870's, the American
scale of production was enlarged by an increasing cultivation of export markets, particu-
larly for textiles, meats, boots and shoes, petroleum, and metal products, including
agricultural and other machinery.

The Economics of Technology 279

American technological progress was unparalleled in both its inven-
tive and practical aspects. Where an invention or discovery was Euro-
pean in origin (railroads, the dynamo), it was developed most highly
and applied most generally in the United States. Almost everywhere
the urge was to let mechanical equipment do the work, to scrap the old
and accept the new. Not only that: as industry tended to adopt the
most efficient equipment, so machinery tended to conform strictly to
mechanical requirements, to become completely functional. The engi-
neering approach was interlocked with an important element of
American life, the spirit of being practical, experimental, even revo-
lutionary in a limited empirical sense. Technological progress was
hampered by the profit motive, it had a crude, devastating effect on
culture; but that was the result of capitalist relations, for technology
is the liberator of man and the basis of a new, human culture. The
urge for increasing technological efficiency marked the upswing of
capitalism; its decline is marked by a revolt against technology, by
proposals for a "moratorium" on invention.

The unparalleled progress of American technology was conditioned
by three basic social-economic factors:

1. The relative insignificance of tradition, resulting in a "pure"
capitalist ideology (except in the slave-owning South) . There were few
vested interests, especially of a feudal character, to hamper technology
and industrialization. The European farmer was conservative, still
partly in the clutch of an older ideology and mode of living; the
American farmer was as practical as the capitalist, unusually eager
for technological change. In Europe the industrial revolution had to
struggle and move slowly against traditional, class, and political oppo-
sition; in the United States it swept onward practically unopposed,
building, in addition, upon the pioneer work of other nations. The
social atmosphere favored the engineering approach of the new tech-
nology.

2. Under capitalism, technological progress depends upon the mak-
ing of profits and their conversion into capital. This, in turn, depends
upon the scale of production and the output of capital goods. Both
were tremendously augmented by development of the great mass
markets of the inner continental areas, much more than in the case of
Europe, with its dependence upon foreign markets. The use of many
machines, unprofitable in other countries, was made possible by the
greater American scale of production and the more active accumula-
tion of capital. (Yet there was excess capacity and capital investment
rose more than output, making necessary an increasing capital invest-

28o The Decline of American Capitalism

ment to produce a unit of product.) American capitalism imposed the

fewest economic limitations upon the development of technology.

3. The comparatively high level of American wages encouraged the
introduction of wage-saving machinery. (This, and not labor-saving,
is the real objective of machinery under capitalism; for while it saves
labor, this becomes a saving on wages accompanied by intensification
of labor. Only socialism can realize fully the inherent labor-saving
function of machinery.) The high level o£ wages was not a result of
capitalist development but a colonial heritage, which capitaHst pro-
duction tried to break down; the differences between American and
European wages were relatively about the same in the nineteenth
century as in earlier periods. Colonial governors denounced the "in-
tolerable" wages and the "exorbitant" demands of the workers. Gov-
ernor Winthrop, of the Massachusetts Bay Colony, observed in 1633
that the "excessive" rates asked by workers had given rise to "general
complaint" and urged legislative action.^* The policy was to beat down
wages. Maximum-wage laws were passed, to force workers to work
for lower pay. Indentured labor and Negro slaves were imported.
But only slavery was partly successful; the other measures failed.
There was a scarcity of labor in general and of craftsmen in particular;
land being abundant, cultivation paid better than work at low wages.
The factory system, early in the nineteenth century, again tried to
lower the level of wages. Women and children, often mere babes
from the almshouses, were employed in preference to men. One textile
manufacturer, commenting on the economy of the new machinery
and water power, wrote: "We got rid of 60 weavers, and substituted
for them 30 girls, who were easily managed and did more and better
work." ^^ But the opportunity of becoming an independent farmer on
the new lands of the frontier created an income norm around which
wages tended to fluctuate, and much below which they could not
permanently fall. Thus historical elements (and they are important
in wage determination) maintained American wages, low as they
were, at levels generally higher than the European. The necessity of
wage-saving stimulated technological progress.

The onward sweep of technical-economic change destroyed the rule
of the old middle class, dominated by the commercial and agrarian
bourgeoisie, the merchants and large landowners. Economic and po-
litical power was usurped by the industrial capitalist. But the develop-
ment of large-scale industry, with its increasing capital needs and
constantly higher composition of capital, meant the decay of the class
of small industrial producers, who were either wiped out or subordi-

The Economics of Technology 281

nated by the concentration and trustification of industry. This in turn
produced another change within the ruHng class. As industry, with
its growing capital needs, raked in the savings of smaller investors,
and was more and more trustified, the multiplication o£ stockholders
separated ownership, management, and control. Management was
vested in managerial employees; control was usurped by financial
capitalists, the masters of monopoly capitalism, an oligarchy operating
through the institutional mechanism of the great banks. This develop-
ment, which appeared in the 1870's, was ascendant by 1900 and com-
pletely triumphant twenty years later. Its basis was the technological
transformation of industry, out of which arose industrial concentration
and monopoly and the centralization o£ financial control.

There were important changes also in the other classes. All per-
sons engaged in agriculture, although scoring an absolute increase,
fell from 52.8% of the gainfully occupied in 1870 to 35.9% in 1900.
The wage-workers, more and more a class o£ unskilled or semi-skilled
workers, became an increasingly larger proportion of the gainfully
occupied. "White collar" occupations made the largest relative gains.
Technicians increased from 8,000 in 1870 to 102,000 in 1900, clerks and
stenographers from 148,000 to 499,000, salespeople and clerks in stores
from 105,000 to 811,000, with an increase of 60% in the number o£
persons in professional occupations.^® There was a similar growth in
the managerial and merchandising employees of corporate industry.
This is a general tendency of capitalist production; in England, from
1861 to 1891, the number of the gainfully occupied rose 100%, with a rise
of nearly 200%, however, in clerks, brokers, agents, and salesmen.^^
Although the small producer was becoming relatively unimportant
in the shadow of trustified industry, a "new" middle class was shaping
itself. It was new, however, only in the sense of inner proportional
changes; for its elements were old — professionals, technicians, brokers,
merchandising employees, storekeepers, salesmen, and agents.
The newest and most important element were the managerial em-
ployees in corporate industry, made necessary by trustification and the
separation of ownership and management, once the combined function
of the industrial capitalist.

The later stages of the upswing of capitalism, from the 1890's on,
were marked by the increasing use of electric and oil power in indus-
try, especially the former. This coincided, in Europe, with the pre-war
beginnings of decline, which would have been much more severe if
not for the stimulus of electric power to the output of capital goods.
In the post-war period the decline of capitalism in Europe was acceler-

282 The Decline of American Capitalism

ated in spite of the expansion in electric power; only in the United
States, in 1923-29, was it a factor in a new upsurge of prosperity.
Now electrical expansion, comparable only to the railroads in the de-
mand it created for capital goods, is practically at an end.*

As in the case of the steam engine, the development of new sources
of power profoundly influenced the structure and operation of ma-
chines and the character of the labor force. The limitations of steam
power were broken by the electric motor and the internal combustion
engine.

Agricultural machinery was especially influenced by the oil engine.
Steam power had been used to pull plows on large farms, but the
results were unsatisfactory. The new oil engine was early adapted to
the use of agricultural machinery; with its improvement and the
construction of light, general-purpose tractors, the way was opened
for the growing use of motor power on farms and their intensive
mechanization. The tractor forced modifications of the older agricul-
tural machinery and the development of many new implements; the
tendency is toward the universal machine with interchangeable im-
plements. The tractor is adapted to the performance of all sorts of
farm work; it can now be used both for small farms and for hilly,
stony, and boggy soils. Efficiency was increased, particularly during
and after the World War, but this tended to multiply the farmers'
burdens. Larger capital needs meant more mortgages and interest
payments. Larger output saturated markets and lowered prices, ag-
gravating the permanent agricultural crisis. As productive efficiency
(stimulated also by more progress in soil fertilization and plant breed-
ing) increased more than output, labor was displaced and a surplus
farm population created.

In industry, electric power not only accelerated mechanization but
greatly augmented the automatic character of machinery and its dis-

* The period after the 1 890's was marked, because of the increasingly higher com-
position of capital and keener competition, by more downward pressure on the rate of
profit. Capitalists sought eagerly for methods to raise the productivity of labor and the rate
of surplus value without the costs of investment in more efficient equipment. The answer
was Taylorism, or scientific management, whose basic element is improving the efficiency
of labor in terms of labor itself. This still means a higher composition of capital, for
fewer but more efficient workers set in motion the same quantity of fixed capital and a
larger quantity of raw materials. But the higher productivity of labor is not compen-
sated by an increase in the output of capital goods. Scientific management made enor-
mous strides in 1922-29. It makes still greater strides under the conditions of capitalist
decline. But scientific management means an absolute displacement of labor and lower
total wages.

The Economics of Technology 283

placement of labor, emphasized by the increasing use of chemistry and
apparatus as means of production. Electric drive changed the early
transmitting mechanism of belts, shafts, and pulleys. Individual drive
w^ith a motor for each machine made possible the most logical arrange-
ment of machinery, of prime importance in serialization and mass pro-
duction. The conveyor system depends upon the electric motor. Motors
were designed and constructed for the needs of particular machines;
finally the motor itself v^^as made an integral part of the machine,
which increasingly became an electrical mechanism. In rayon plants
there are spinning frames on which every spindle is driven by its own
motor, far outstripping the older mechanical spindles; electrification
has made rayon production practically automatic in all its varied
stages. All machines are virtually automatic in the silk industry,
with the exception of reeling, in which the operator still performs a
large part of the work. In rolling mills, the electrification of main-roll
drive and controls has resulted in automatic continuous operation.
In blast furnaces and power plants coal is automatically stoked; the
stokers are replaced by "combustion engineers" who supervise control
dials. The electric teletypesetter, using a worker no more skilled than
an ordinary typist, displaces compositors with perforated cards which
are attached to the linotypes and operated automatically; and the rolls
may, by radio, be sent from a central point to any number of plants.
A photoelectric device sets type automatically direct from typewritten
copy. Non-factory work is marked by similar developments; in open
pit mining an electric shovel digs enough dirt in twenty-four hours
to fill 7,500 motor trucks.^^ While in some cases the tendency is toward
the one-job machine, in others it is toward the multiple automatic
combining operations formerly performed by separate machines. A
modern drilling machine performs 132 operations. An automatic
monster makes complete automobile frames in one plant. In a paint
factory the raw materials are fed into the machine and move mechan-
ically from one process to another until the filled and sealed cans arrive
at the shipping floor.^^ Auxiliary appliances also become constantly
more automatic, operated with electric, pneumatic, or hydraulic power.
There are machines which count 25,000 pieces to the ounce and others
which count tons of heavier pieces. Electric devices, often within the
machine itself, increasingly control precision and quality. Industry
is multiplying its automatic thermostats, automatic mixing devices,
and more highly accurate gauges. In steel, aluminum, and pulp-paper
mills, temperatures and pressures are under electric control; in an
electric heater for forgings a photoelectric cell passes the heated billet

284 The Decline of American Capitalism

on when it reaches the right temperature, eliminating overheating,
which weakens the metal, and underheating, which breaks the die;
an electric machine inspects the surface of quality products and dis-
cards those with defects.^^ The levers and push-buttons, which control
the operation of automatic machines and apparatus, find their highest
expression in remote control and the automatic plant. Control appli-
ances are concentrated on switchboards in a "cabin" at some central
point; a few workers, each attending one or more switchboards and
dials, control the plant's automatic operation. The plant becomes
almost manless. In some hydroelectric plants there is not a single
worker; reports are made and control is exercised through automatic
electric devices.

The photoelectric cell, or "electric eye," has become a most powerful
factor in the fuller realization of the automatic principle. "An unusual
variety of uses has been found for this mechanical eye, which never
knows fatigue, is marvellously swift and accurate, can see with invisible
light, and coordinates with all the resources of electricity. It sorts
beans, fruit, and eggs, measures illumination in studios and theatres,
appraises color better than the human eye, classifies minerals, counts
bills and throws out counterfeits, counts people and vehicles, deter-
mines thickness and transparency of cloth, detects and measures strains
in glass, sees through fog, is indispensable in facsimile telegraphy,
television, and sound-on-film pictures, directs traffic automatically,
and serves as an automatic train control." ^^ Electricity functions as
power, regulates precision and quality, and makes possible the remote
control of automatic machinery, apparatus, and plants. It is also used
more constantly in chemical processes, in the creation of alloys and
of synthetic materials and products, which has, moreover, only begun.
Modern industry depends upon electricity and chemistry; and both
make for an increasingly automatic performance of work by the more
purposive application of science.

Automatic machines and apparatus and the automatic plant, fully
reahzing the principle inherent in mechanical work, are completing
the revolution in the relations between labor and production. The
mechanical equipment not only absorbs skill but labor itself; it no
longer merely displaces workers by performing their function more
efficiently but absorbs the function itself. There is a change both in
the relations of labor and in the character of labor.

In the handicraft system, all labor was skilled, whether it was the
artisan working on machines and appliances or the craftsman working

The Economics of Technology 285

directly on raw material, or a combination of both types of labor.
All-around sJ^illed labor was the basis of production.

In the early factory and in the earlier stages of the industrial revo-
lution, unskilled workers appeared and became increasingly numerous.
It was the dominant type of labor, although more and more machinists
or mechanics were necessary to superintend the machinery. The divi-
sion and specialization of labor was the basis of production.

In the later stages of industrialism, with its large-scale industry and
more efficient and skill-absorbing equipment, the tendency was to
make the mass of workers semi-skilled. The need was neither for
highly skilled nor wholly unskilled labor, but for workers whose partial
skills were easily acquired. Relatively fewer mechanics were needed to
superintend the more efficient machines and apparatus. (At the same
time a new class of mechanics arose, such as locomotive engineers,
linotype operators, and electricians.) The division and specialization
of both labor and increasingly automatic mechanical equipment are the
basis of production.^

This third stage is still the predominant one. But a fourth stage
has already definitely appeared, although limited to the more highly
developed industries and plants. Complete automatic production trans-
forms the labor force into a small group of skilled supervisors and
repairmen. "The development of more automatic machinery requires
the *key' man, a new and higher type of mechanic, the junior tech-
nician. Labor formerly unskilled becomes highly technical; thus the
occupation of stoker — traditionally the lowest — gave way to that of
the junior technician who operates the boilers by tending a gauge. . . .
All types of automatic machinery demand the services either of the
mechanic or of the junior technician." ^^ The modern mechanic and
the junior technician need almost as much technical knowledge as
engineers; they can, at a pinch and temporarily, replace the engineers.
The division and specialization of automatic mechanical equipment
becomes the basis of production.

Not only labor but management also is profoundly affected by
mechanization and automatic production. One-man management is
in the discard. Managerial functions are simplified, specialized, and
mechanized, and need increasingly smaller skill to perform. Managerial
skill and labor are transferred to mechanical devices. In automatic

* All these developments involve a tremendous socialization of production, in the
form of large-scale industry. It also involves a socialization of invention, for all large
industrial corporations have highly organized and eflScient laboratories employing hired
"inventors" who systematically develop new technological applications of science.

286 The Decline of American Capitalism

plants only a thin line divides managerial and ordinary work : manage-
ment itself tends to become an automatic mechanical function.

Of the utmost cultural importance is the tendency of highly devel-
oped technology to brea\^ down the division of labor between wor\er
and wor\er and management and the worl^ers. The worker's new
requirements of "mental alertness, general intelligence, 'polytechnic
literacy' and loyal dependability" make him, according to one observ-
ant management engineer, "more and more an intelligent human
being, an all-around educated man, defining 'educated men' as 'those
who can do everything that others do.' This transition in the functional
characteristics of workers is slowly but surely obliterating not only the
'division of labor' . . . but it is also steadily abolishing the distinction
between the 'man in overalls' and the 'white collar man.' " -^ Thus
technology itself confirms one of the most derided "utopian" ideas of
Marx, who, fifty years ago, wrote of the "higher phase of communist
society, after the enslaving subordination of individuals to the division
of labor and with it also the antagonism between manual and intel-
lectual labor have disappeared, after labor has become not merely a
means to live but is itself the first necessity of living." ^* ObUteration
of the division of labor, which means that division and specialization
of "labor" increasingly becomes a function of the mechanical equip-
ment, is now merely a tendency. Its fulfillment presupposes a constantly
greater development of the forces of technology; but this multiplies
the contradictions and antagonisms of capitalist production, and there
is, consequently, a growing revolt against and limitation of techno-
logical progress. It presupposes, moreover, definite social-economic con-
ditions. The cleavage between town and country must be ended by the
socialization of agriculture and its combination with industrial produc-
tion, the liberation of industry, made possible by electric power, from
the fetters of geographical concentration. (Capitalism uses only slightly
the opportunity to decentralize industry: too many vested interests are
menaced. The Henry Ford idea of "combining" industry and agricul-
ture means simply that workers, after their labor in the factory, are
to "farm" vegetable gardens to supplement insufficient wages; the real
farmers, of course, would suffer from the lower demand.) There must
be, and this is wholly possible, a mass participation in higher learning.
Out of these conditions will arise the new ideology of stressing the
dignity of wor\, and not its forms. . . .

While the technology conditioned by electricity means partly "^a
different \ind of machine," it does not mean "a different 1{ind of social
relations," ^^ does not change the fundamental social-economic relations

The Economics of Technology 287

of capitalist production.* Electricity, technologically, has induced many

* A group of engineering mystics, the Technocrats, worship at the shrine of Power.
They forget that power does not function in emptiness, that it needs machines, apparatus,
and labor, and that all the factors are conditioned by social-economic relations. From i860
to 1 890, the productivity of labor increased more than the consumption of power, because
machinery increasingly supplanted manual labor. From 1890 to 1914, the consumption of
power increased more than productivity, because there were no fundamental changes in
machinery. From 191 9 to 1929, productivity increased more than power consumption,
because, primarily, of an essentially new type of machine. In terms of electric power, the
electrification of American manufactures rose from 5% in 1899 to 56% in 1919,
with a very small increase in the productivity of labor; it rose to 82% in 1929, a
smaller rate of growth accompanied by a great increase in productivity. {Census of
Manufactures, 1929, v. I, p. 112.) The greater increase in the productivity of labor in
1919-29 was primarily the result, not of electric power in itself, but of the development
of the electrical machine and of electrochemistry. In 1 899-1 91 9, electricity, by and large,
was merely used to replace steam power in driving old types of machinery. Moreover,
productivity in 1919-29 was increased by changes in the organization of labor, by the
more scientific utihzation of raw materials and their wastes, and by the increasing use
of synthetic materials (in the creation of which chemistry is as important as electricity).
While horsepower per wage- worker rose 54% in 1899-19 19, it rose only 49% in
1919-29. Manufactures in 1929 used less than 6% of installed horsepower; 80% was
used in buses and automobiles, 90% of it under the hoods of pleasure cars. (C. J.
Hirshfeld, "Power," Toward Civilization, p. 74-75.) The use of power in automobiles
and the home undoubtedly has a profound influence on social life, but not directly on
production (except in demand for goods), and production is basic. Price spoils the
promise of power, say the Technocrats, in the manner of the most doctrinaire price
economists. But price is only one element in the capitalist mechanism, and not the most
basic; price in the Soviet Union exists without the disturbances characteristic of the
capitalist economy. And do they think they can tinker with price relations without
abolition of private property and profit? The Technocrats' power-mysticism makes them
speak of "ergs" and "energy money" as a medium of exchange. This is sheer techno-
logical idolatry. It forgets that at every point in the productive process you meet human
labor, either living labor in the form of workers or dead labor in the form of the means
of production. This is recognized by two engineers, L. P. Alford and J. E. Hannum,
who urge that production be measured by a time-rate based on 1,000 productive man-
hours, the "kilo man-hour" or kmh: "One hour of human work is the objective equiva-
lent of any other hour of human work, when each hour is averaged from the total
number of productive hours worked by the group to which the worker belongs. This is
the principle of economic or exchange equality, which must be enforced to stabilize
the interchange of goods, articles and services between the members of one producing
group and those of any other working group." (New York Times, February 4, 1934.)
The kmh is urged, fantastically, as the basis for capitalist planning; but what is it, in
final analysis, but the labor theory of value, which Marx analysed most thoroughly?
The amount of socially necessary labor incorporated in a commodity determines its
value; this is distorted by capitalist production, and commodities nearly always sell
above or below their value (a basic factor in capitalist disturbances), but only changes
in the amount of labor incorporated in commodities can explain long-time changes in
price.

288 The Decline of American Capitalism

qualitative changes in the machinery, apparatus, and chemical processes
of production; and without it remote control would be impossible. But
economically, the changes are merely quantitative; electricity realizes
more fully the inherent automatic principle of machinery, and, by
tremendously increasing the productivity of labor, aggravates the
antagonism between production and consumption and multiplies the
strains and stresses of capitalist industry. Thus the newer electric tech-
nology is an accelerating agent, as were all former great technological
changes. But this acceleration is the more significant because of an
economic change : in the epoch of the upswing of capitalism the curve
of production was upward, now it is downward. The threefold results
are an expression of the general crisis and decline of capitalism:

The rate of increase in production is smaller (where it is not minus)
than in the productivity of labor.

The displacement of labor becomes absolute; where formerly the
industries producing capital goods absorbed relatively more workers
than the consumption goods industries, now they displace more
workers.

TABLE V

The Increase in

Production,

, Capital Claim <:, and

Wages,

ig2s-2g

New

Total

Total

Profits-

Industrial

Year

Production Capital

Debts

Capital

Interest

Wages

1923

lOO.O

100. 0

lOO.O

lOO.O

lOO.O

lOO.O

1924

*

87.7

108.1

105.8

92.3

95-0

1925

103.5

125.8

112.3

122.8

109.4

99.9

1926

#

115.3

1 1 4.0

131-3

II3.0

105-3

1927

no. I

102.7

114. 1

139.3

1 1 1.2

102.3

1928

*

128.6

136.1

145.0

131-9

99-7

1929

120.6

136.1

146.9

152.7

143-8

*

* Not available.

Production is value output of manufactures. New capital is net issues of securities,
less issues of investment trusts and trading and holding companies; debts includes
funded and unfunded obligations; total capital includes net new issues and corporate
savings, or surplus. Industrial wages is the wages of workers in manufactures, mines,
quarries and oil wells, construction and transportation (including electric power, tele-
phones and telegraphs), water transportation, and municipal traction; these wages
amounted to $18,105 million in 1923 and $18,050 million in 1928.

Source: Production — Census of Manufactures, 1929, v. I, p. 16; new capital — F. C.
Mills, Economic Tendencies in the United States, pp. 427, 438; total capital — Bureau of
Internal Revenue, Statistics of Income for the respective years; total debts — Robert R.
Doane, The Measurement of American Wealth, p. 173; wages— W. I. King, The
National Income and Its Purchasing Power, pp. 132-33.

r

\'\5

/

/
/

/

4 \

\^o

f

1 1
1 1

i

1 1

1 1

1 1

dJOTALCAPITAl^^

130

uo

110
100

y

/

1
1

1

/^

EBTS h /

/

/ Ik

1 Ik

! h

v!

v^

(j^NEWC

>

/

'^r

PROFITS-
INTEREST

S

33

fcil.

# V

# )<

<

A

/

1^^ — ■

w

Ij/k

RODUCTIO

b

1

/

/
/
/ i

t M

7 ^ /

a ^ 1
B X 1
f ^ /
F A /
5c /

^ 1 ^

^ 1
v/
X j

•

•

•

•

•

•

•

•

V

* \

1 •

7 •
f •

fit

>

•

rC

NDU5TRIAL WAGES

Lis

><

h£

IS

iJ ♦WM NiS Ilii Ni7 m» 11

v\

<L

XII. PRODUCTION, WAGES, AND CAPITAL CLAIMS.

290 The Decline of American Capitalism

The tendency for capital claims to increase faster than production
becomes more marked.

Capital claims, profits, and interest in 1923-29 grew at a faster rate
than production (Table V), much faster than in former years. This is
particularly evident in new capital investment, which rose 36.1% com-
pared with 20.6% in production. While the growth of capital claims
always outstrips production, this becomes more marked as capitalism
approaches maturity and decline. Much of the higher productivity of
labor represented no new capital investment; but the composition of
capital, nevertheless, was increasingly higher, and, because of excess
capacity and the tendency of the rate of profit to fall, a constantly
greater capital investment was necessary to produce a unit of product.
Capital claims, moreover, do not arise only out of investment in pro-
duction, but out of "investment" in mere claims upon production.
This tendency was sharpened in 1923—29, because the increasingly spec-
ulative character of industry multiplied capital claims regardless of
production. The marvels of technology enlarge the wholly predatory
superstructure of production, a decisive aspect of monopoly capitalism.

Corporate debts increased nearly as much as other forms of capital
claims. To make this the causal factor in "unbalancing" the economic
system is a total misunderstanding of the facts, where it is not mere
apologetics. Debt is itself a capital claim. It can be separated only in a
functional sense, not on principle. The debt of industrial corporations
is an expression of the constantly greater capital investment needed to
produce a unit of product, of the excess capacity and intensified compe-
tition which force down the rate of profit and result in deficits and bor-
rowing. The debt of non-industrial corporations, and most of their
non-debt capital, represents mere claims upon production. Pressure of
surplus capital, the outcome of capital, profits, and interest increasing
more than production, multiplies mere "claim" capital, particularly in
the form of debt. The debts of the farmers represent an intensification
of capitalist exploitation and the permanent agricultural crisis (smaller
markets, larger output, and still larger productivity) . Thus the increase
in debt arises out of the aggravation of basic maladjustments and dis-
turbances in the capitalist economy. It is also evidence of growing
parasitism, the "purest" form of which are the world's enormous gov-
ernment debts. As an element of rigidity in the economic structure,
debt is simply one of the many rigid elements in monopoly capitalism —
control over output, markets, and prices, and, in depression, interference
with the forces of liquidation. All of these elements intensify depres-
sion and hamper recovery. Scale down debts or abolish them, and they

The Economics of Technology 291

rise anew; for debt must increase under the conditions of capitalist
production.

As capital claims grow faster than production, more pressure is put
on capitalist enterprise to "earn" larger profits. Excess capacity and
competition are aggravated, including the struggle for foreign markets.
Higher profits and interest payments proportionally lower mass pur-
chasing power, and sharpen the antagonism between production and
consumption. Wages are slashed or merely maintained: during three
of the five years 1924-29, total industrial wages were below 1923, while
capital claims, profits, and interest rose. More efficient equipment is
introduced and labor displaced. (In the epoch of the upswing of capi-
talism the introduction of more efficient equipment, and the resulting
higher composition of capital, lowered relative wages, but total and
average wages rose because of the increase in production and markets.
Under the conditions of capitalist decline, however, the tendency is
for new equipment to result in lower total and average wages, as the
great costs of the newer machines and apparatus become relatively
still greater because production and markets are restricted and the costs
of excess capacity rise.)

Higher capital claims and labor displacement are interlocked. Dis-
placement is most significant in the industries producing capital goods,
upon which capitalist production depends (Table VI). Up to 1919 these
industries absorbed an increasingly large number of workers, relatively
more than the industries producing consumption goods. That meant

TABLE VI

Displacement of Labor in Capital Goods Industries, igi^-2g

Number of Workers Employed:

1914

1919

1923

1929

Machinery

575,000

960,000

850,000

975,000

Iron and Steel

435,000

600,000

625,000

615,000

Other Metal

170,000

215,000

210,000

220,000

Transport Equipment

395,000

840,000

545,000

435,000

Stone, Clay, Glass

185,000

155,000

195,000

220,000

Lumber Products

215,000

215,000

235,000

220,000

Totals

1,975,000

2,985,000

2,660,000

2,685,000

Construction

1,492,000

1,078,000

1,16^,000

1,400,000

Mines and Quarries

310,000

296,000

*

263,000

* Not available.

Source and methods of computation: same as in Table V, Chapter XIII, except that,
because of exclusion of oil wells, one-third of workers in mines and quarries are
credited to capital goods work.

292 The Decline of American Capitalism

an upswing o£ capitalism, an increasing output and absorption o£ capi-
tal goods. It meant also an oflfset to the displacement of workers by the
rising productivity of labor. But the rate of absorption of workers in
capital goods industries slowed down considerably from 1914 to 1919,
with the rate thereafter changing to one of displacement. The number
of capital goods workers rose from 3,777,000 in 1914 to 4,348,000 in
1929, an increase of only 15%; but the increase in fact was much smaller
because the one was a year of depression and the other one of pros-
perity.* While the statistics indicate that the rate of absorption was at
a standstill in 1919-29, it actually became one of displacement; for the
decrease in the number of capital goods workers from 4,359,000 to
4,348,000 was small only because the number of construction workers
in 1919 was unusually small owing to the war-time drop in building.
In 1929 the number of construction workers was below the 1914 level.
(In 1914 construction workers represented 39% of all capital goods
workers, in 1929 only 32/0. This decrease is of extraordinary signifi-
cance; because of the undeveloped inner continental areas, construction
has played a more important part in the American accumulation of
capital than elsewhere.) If construction is omitted, the number of
capital goods workers fell from 3,281,000 in 1919 to 2,948,000 in 1929.
The lo>s was wholly in transport equipment and mining, but with
employment stationary, although labor was relatively displaced, in the
other industries. These other industries in the past absorbed increas-
ingly more workers and the production of transport equipment was
for a time the most important element in the accumulation of capital;
its displacement of labor is an expression of the exhaustion of the long-
time factors of expansion in transportation, offset only in small part by
the motor truck.

In the epoch of the upswing of capitalism the number of industrial
workers grew constantly. In particular, the capital goods industries
absorbed more workers than the industries producing consumption
goods; but now they displace more workers. In manufactures, in
1919-29, the decrease in capital goods workers was 300,000 or 10%, in

* The slowing down of capital goods production is a world development. The num-
ber of workers engaged directly in the manufacture of industrial machinery in England,
Germany and France, according to Friedrich Kruspi, "Machinery, Industrial," Encyclo-
pedia of the Social Sciences, v. X (1933), p. 6, rose from 875,000 in 1913 to 1,037,000
in 1925; in the world as a whole from 1,891,000 to 2,055,000, or only 9%. The increase
was almost wholly English, and was due more to the relatively small rise in the produc-
tivity of labor than to any considerable rise in output. In all industrial countries, more-
over, the number of workers in capital goods industries tended to decrease from
1920 to 1929.

The Economics of Technology 293

consumption goods workers 138,000 or 2%. This complete reversal of
previous trends took place when the American economy was still on
the upswing, although the rate of expansion was downward; it now
becomes the creator of an increasing surplus population of unemployed
and unemployable workers. For it not only means that the productivity
of labor is rising more than production, but that technological displace-
ment of wor\ers is aggravated by the downward movement of pro-
duction, particularly in capital goods.

Some urge "control" of the machine. But since the machine acts as
it does only because of the social-economic relations of capitalist pro-
duction, control is possible only when socialism abolishes private
property and profit. The Cigar Makers International Union, supported
by William Green, urges legislation to tax employers to contribute
"toward the relief of the displaced employees until such time as they
may be absorbed elsewhere." ^^ This proposal might have been of some
value in the epoch of the upswing of capitalism, when absorption was
greater than displacement. But now, with permanent displacement
on a mass scale? It means poor relief.

Others urge a revolt against the machine. Either "down with ma-
chines" or a "moratorium" on the introduction of new machines.
(Many NRA codes forbid the introduction of new machinery unless
first approved by the code authorities.) That is revolt against the
increasing purposive application of science, against all the possibili-
ties of plenty, leisure, and culture inherent in technology if freed
of its capitalist fetters. These possibilities might be measurably real-
ized by mere use of existing equipment. The efficiency of this equip-
ment, moreover, is very uneven; in blast furnaces the range of
production is from 145 tons per 1000 man-hours to 1,313 tons, and in
petroleum refineries from 633 barrels to 141,829 barrels.^^ Thus pro-
ductive efficiency, and the mass of goods and services, might be greatly
augmented by raising all industry to the level of the most efficient
existing equipment. But still greater are the possibilities of techno-
logical progress, and of plenty and leisure for all. "Our chemical
techniques and manufacturing processes," in the opinion of Prof.
Richard Willstaetter, Nobel Prize winner in chemistry, "are usually
drastic and crude, resembling forces of the inorganic rather than of
the organic world. It is our task to appropriate more and more the
delicate methods of the living cell, where reactions proceed at normal
temperatures and pressures, with mild reagents, and with the most
subtle catalysts." ^^ And when American scientists produced in fur-
naces metals which occur rarely in nature and which are indistinguish-

294 The Decline of American Capitalism

able from the natural product, the scientific comment was: "It is
impossible to say when the theory of to-day will become the practice
of to-morrow." ^® Yet both research and its application are being
restricted by capitalist decline. Only the Soviet Union offers an un-
limited opportunity for science and its technological application, freed
of capitalist fetters.

But the technological basis of capitalism is a force which perpetually
changes the material relations of production.* Decline will limit the
progress of technology, but will not stop it. (The greatest technological
advance will be made in armaments, increasing their powers of destruc-
tion.) In the midst of the greatest depression in history there was
technological improvement, an increase in the productivity of labor.
This limited progress will not realize the full possibilities of science.
But it will aggravate economic maladjustments and disturbances; for
technological improvements will proceed even more haphazardly and
unevenly than in the past. And a smaller rate of technological change
than formerly will be more disturbing because of the downward move-
ment of production and the absolute displacement of labor.

The resulting surplus population is composed mainly of workers. But
it includes other elements of the population, who also feel the pressure
of capitalist decline.

From 191 9 to 1929, large numbers of farmers and farm workers
were displaced, at least 500,000. The main factor was increasing pro-
ductive efficiency, as the markets for agricultural products were virtu-
ally constant. The government's "farm relief" program accelerated
displacement and augments the agricultural surplus population. Thus
R. G. Tugwell, Assistant Secretary of Agriculture, says: "We must
study and classify American soil, taking out of production not just
one part of a field or farm, but whole farms, whole ridges, perhaps
whole regions. ... It has been estimated that when lands now unfit
to till are removed from cultivation, something around 2,000,000 per-
sons who now farm will have to be absorbed by other occupations." ^°
But these "other occupations" are also displacing workers who must
find other work. Moreover, if all farms used the most efficient meth-

* "The bourgeoisie cannot exist without constantly revolutionizing the instruments
of production, and thereby the relations of production, and with them the whole rela-
tions of society. Conservation of the old modes of production in unaltered form was, on
the contrary, the first condition of existence for all earlier industrial classes. Constant
revolutionizing of production, uninterrupted disturbance of all social conditions, ever-
lasting uncertainty and agitation distinguish the bourgeois epoch from all earlier ones."
Karl Marx and Friedrich Engels, The Communist Manijesto.

The Economics of Technology 295

ods, the displacement would be even larger than the 2,000,000 envis-
aged by Tugv^^ell. The movement for "subsistence farms" means simply
a desperate evasion of the problem and a lowering of living standards.
If large-scale farming grows, it will intensify, because of constant
markets, the economic pressure on the smaller farmers, displacing
them or lowering their income. The American farmers are steadily
becoming peasants, v^th many of them thrown into the surplus popu-
lation.

Clerical workers are also swelling the surplus population. The num-
ber of "salaried employees" in manufactures fell from 1,447,000 in 1919
to 1,358,000 in 1929,^^ a loss of 6.1% (compared with 1.8% among wage-
workers). But the loss was actually greater, as the figures include
managerial employees and officers, whose numbers increased. The
modern office, with its array of machines and appliances, resembles a
factory. There is increasing mechanization, transfer of skill, and divi-
sion of labor. Clerks, statisticians, and bookkeepers are replaced by
machines tended largely by semi-skilled workers. Many of the machines
are automatic. Mechanization lagged in office work; its speeding-up
resulted in a displacement of clerical workers greater than among
wage-workers.

From 1 91 9 to 1929, the number of technical workers increased much
faster than the demand. Already before the depression it was hard for
graduates of technical schools to find jobs; it is becoming harder.
Technicians are scourged by permanent unemployment. The situation
in Germany is characteristic, if most acute; in 1930, according to one
professor of engineering, only 20% of technical graduates got jobs,
another 10% continued studying, 20% took any kind of job, and 50%
were wholly unemployed. And the only suggestion the professor has
is this: "Is it not time to put a stop to this mass striving for higher
learning?" ^^ (That is exactly what fascism is doing, with a similar
trend in non-fascist countries: one of the most suggestive aspects of
the decHne of capitalism.)

Most clerical and technical workers have been pushed down to the
occupational level of wage-workers. In the earlier stages of capitalism
the clerical worker was measurably a "higher" employee, in the
confidence of the employer, considering himself in the same class. The
technician, who originated in the master mechanics of the early fac-
tory system, was made a member of the "free" professions by the tech-
nological transformation of industry; now he is practically a wage-
worker, in many cases earning less than the organized skilled workers.
Yet these "white collar" workers still cling in large measure to the

296 The Decline of American Capitalism

elder ideology, still consider themselves apart from the working class.
This is true also of the non-industrial "free" professions, although
many of their members are employees either of corporations or public
institutions. All of these groups are heavily represented in the surplus
population. In January, 1934, of 25,127 "white collar" workers on Civil
Works Service relief payrolls, 6,240 were professionals: 1,841 teachers,
763 doctors, dentists and nurses, 632 engineers, chemists, architects and
draftsmen, and hundreds of musicians, artists, sculptors, actors, li-
brarians, cartographers, botanists, geologists, research workers, statis-
ticians and translators.^^ The "new" middle class is being rapidly
proletarianized, thrown into the surplus population.

The surplus population not only grows quantitatively, it also changes
qualitatively. In the epoch of the upswing of capitaHsm the surplus
population grew slowly; it was essentially a labor reserve, facilitating
the expansion of capitalist production. In the epoch of decline, how-
ever, the rapidly growing surplus population ceases being a mere labor
reserve; it restricts the production of surplus value and profits and
threatens capitalist domination.

Increasing unemployment means a decrease in the number of work-
ers producing surplus value, whose realized form is profit. "Profit
comes, not from a diminishing of the labor employed, but from a
diminishing of the labor paid for." ^* This is bound up with a basic
contradiction of the capitalist mode of production: "The workers as
buyers of commodities are important for the market. But as sellers of
their own commodity — labor power — capitalist society tends to depress
them to the lowest price." ^^ Consumption is necessary to production;
but capitalism limits the wages and consumption of the workers, thus
creating cyclical crises and breakdowns. Another form of the contra-
diction: capitalist production depends upon the workers, upon the
living labor which yields surplus value and profit; but capitalism
tends to displace workers. In the epoch of the upswing of capitalism
the displacement was relative; the increase in the number of workers
meant an increase in the mass of surplus value and profit, which
checked the tendency of the rate of profit to fall. Now absolute dis-
placement of workers on a constantly greater scale means a decrease
in the mass of surplus value and profit. Unemployed workers do not
produce surplus value. Neither do they consume, or they consume very
little. The mass of surplus value shrinks, in spite of a rise in the rate,
as the mass of workers shrinks. And markets shrink as the workers
consume less. Excess capacity rises and the rate of profit falls. For
machines neither produce surplus value nor do they consume. The

The Economics of Technology 297

one is necessary to yield profit, the other to sustain production. These
are the conditions which exist in depression, and they become chronic
in the epoch of decline. Thus the surplus population threatens the
economic foundations of capitalism.

It also threatens capitalism poHtically. Mass disemployment is poten-
tial with revolution. Unemployed workers must be fed (as niggardly,
of course, as possible) to prevent revolt. This means a drain upon the
wages of employed workers; it also means a drain upon profits in the
form of higher taxes, as long as there is the fear or possibility of action
by the workers. By every means in its power, however, the capitalist
class attempts to throw all the burdens of disemployment and decline
upon the workers; where "democratic" means fail, it resorts to fascism.
Social disturbances become social upheavals. Capitalist monopoly
tightens its grip upon industry, the capitalist oligarchy its grip upon
society and government. The resort to war becomes more possible and
more frightful. Technology, although limited in its progress and be-
cause of it, creates new economic maladjustments and disturbances;
and it becomes clearer that the capitalist mode of production is wholly
relative and historical, that it imposes new fetters upon the technical-
economic forces of society. These forces revolt against the fetters
imposed upon them, they thrust forth the need for new social rela-
tions of production. As mass standards of living fall and mass misery
grows, the struggles of the workers take on new and higher forms,
attracting other exploited elements. For while, in the words of Marx,
there is "an increase in the mass of misery, oppression, enslavement,
degradation and exploitation," with this "grows the wrath of the
working class, a class always growing in numbers, and disciplined,
united, organized by the very mechanism of capitaHst production itself.
The monopoly of capital becomes a fetter upon the mode of production
which has flourished with it and under it. The centralization of the
means of production and the socialization of labor reach a point where
they are incompatible with their capitalist husk. This is burst asunder.
The knell of capitaUst private property sounds. The expropriators are
expropriated." ^^

Summary

iU NEMPLOYMENT is a normal aspect of capitalist production, which
needs a labor reserve for the expansion of industry and to beat down
wages. The amount and character of unemployment are closely asso-
ciated with the development of capitalism.

In the earlier stages of industrialism, the displacement of labor by
machinery tended to be absolute, because the productivity of labor
generally rose more than production. There was the growth of a sur-
plus population and increasing misery.

In the epoch of the upswing of capitalism the creation of a large
surplus population was checked in the industrial countries. Production,
particularly of capital goods, rose more than the productivity of labor.
Displacement was relative, employment increased. Nevertheless, nor-
mal, technological, and cyclical unemployment was a constant and
increasing torment to the workers. This was especially true in the
United States after i860, when a surplus population appeared for the
first time. And the check in the growth of the surplus population in
the industrial countries of Europe was mainly due to the exploitation
of economically backward peoples, among whom there was an increase
in the surplus population and increasing misery.

If, in the epoch of the upswing of capitalism, unemployment in-
creased in spite of the fact that production rose more than the produc-
tivity of labor, it must increase still more in the epoch of decline, when
the curve of production moves downward while technological effi-
ciency and productivity move upward. The displacement of labor is
absolute, unemployment tends to become permanent ^/Vemployment,
and the surplus population grows. After the World War, under the
impact of economic decline, normal unemployment was greatly aug-
mented in most of the capitalist nations of Europe. It compelled adop-
tion or extension of unemployment insurance and relief plans, which
American businessmen considered the sad necessity or moral flabbi-
ness of people not nourished on the traditions of "rugged individual-
ism." But during the same period, in spite of and because of prosperity,
unemployment was increasing in the United States, although not as
yet on the European scale. This was more than mere repetition of

298

Summary 299

former experience. For the first time in American history there was
an absolute displacement of labor in manufactures, transportation, and
agriculture. It marked the coming to maturity of the elements of
the decline of American capitalism.

The tremendous cyclical unemployment in 1930-34, nearly twice as
great relatively as in the worst of former depressions, is an indication
of what is to come. If and when production reaches the 1929 level,
there will still be 6,000,000 to 8,000,000 unemployed workers. Nor can
state capitalism or fascism check this development, for it is a re-
sult of economic decline, of the fact that production moves down-
ward while technological efficiency and the productivity of labor move
upward. Workers are thrown out of work both by lower production
and higher productivity. Where formerly technological changes meant
only a relative displacement of labor, now they mean an absolute dis-
placement. The surplus population grows. It threatens capitalist profit,
because permanent unemployment limits the production of surplus
value. And it threatens capitalist domination, because mass disemploy-
ment is potential with the threat of revolution.

Underlying permanent unemployment is the unequal division of the
proceeds of industry. For unemployment is essentially the result of the
antagonism between production and consumption, of the fact that
capitalism augments production and profits while it limits the income
and consumption of the workers. A piling up of capital claims, profits,
and interest occurs as the composition of capital becomes increasingly
higher. This forces lower wages and displacement of labor. The
unequal distribution of income and wealth tends to become more
unequal. The increase in capital claims and unemployment are inter-
locked with each other; both are interlocked with the distribution of
income and wealth, which responds sensitively to technical-economic
and class changes.

PART SIX
Concentration of Income and Wealth

Introductory

Jl HE unequal distribution of income and wealth renders absurd all
capitalist society's pretensions to democracy and equality. It sticks like
a bone in the throat. And it threatens to choke capitalism, for the
unequal distribution arises out of and aggravates all the maladjust-
ments and disturbances of capitalist production.

Although the concentration of income and wealth has become con-
stantly greater, many capitalist apologists have always insisted that
it was breaking down. This was one of the major claims of the pre-1929
"new capitalism." The logic of the illogical assumption that the
"policy" of increasingly higher wages was accepted by the employers
led the prophets of the "new capitalism" to insist :

That, in the words of President Calvin Coolidge, "the results of
prosperity are going more and more into the homes of the land and
less into the enrichment of the few." ^

That, consequently, the distribution of income and wealth was
becoming more equal, more democratic; the indubitable proof of
which, according to the apologists, being the "enormous" increase of
"mass" participation in stock ownership.

Now, in the cold gray dawn of the morning after, it is said that //
the distribution of the proceeds of industry had been less unequal
there would have been no cyclical crisis and depression. This was
also said by the prophets of the new "new capitalism" of Niraism.
Thus Rexford Guy Tugwell declared that "imperious necessity" com-
pels a "more even" and "just" distribution of wealth and income
among "the people as a whole," otherwise "our whole economic struc-
ture falls into idleness and ruin." And Harold L. Ickes, Roosevelt
Secretary of the Interior, said:

"A bloodless revolution has occurred, turning out from the seats of
power the representatives of wealth and privilege. ... I believe that
we are at the dawn of a new era when the average man and woman
and child in the United States will have an opportunity for a happier
and richer life. And it is just and desirable that this should be so. After
all, we are not in this world to work like galley slaves for long hours

303

304 The Decline of American Capitalism

at toilsome tasks, in order to accumulate in the hands of 2% of the
population 80% of the wealth of the country." ^

Thus Niraism created its ballyhoo. And "practical" economists
manufacture theory to make the deception appear rational. But the
history of capitalism is full of promises to "equalize" income and
wealth, while their concentration was becoming steadily greater. And
the promises burst into new life precisely at the moment when, under
the conditions of capitalist decline, the income of the workers must
decrease while the concentration of wealth and income becomes rela-
tively greater.

CHAPTER XVII

Class Distribution of Income

w.

HiLE some capitalist apologists, contrary to the facts, have in-
sisted that the distribution of income was becoming more equal, others
have used economic theory to justify the existing unequal distribution.
It was assumed that "fixed natural laws" determined "distributive
shares," according to productive function performed. The theory was
fundamental in the system of the American economist, John Bates
Clark:

"There are fixed laws of distribution which society is not at liberty
to violate. . . . Where natural laws have their way, the share of income
that attaches to any productive function is gauged by the actual product
of it. . . . Wages are the whole product of labor. . . . Every laborer
is paid the exact equivalent of what he produces and capital receives
the exact equivalent of what it produces. . . , Natural law, so far as
it has its way, excludes all spoliation." ^

The animus is clear — the same animus of the efforts to disprove the
Marxist theory of value by means of the subjective theory of marginal
utility, now discredited: labor is not necessarily exploited under the
social relations of capitalist production, and its share of the national
income, however small, is fixed, natural, and just.

A variant of the "fixed shares" theory is the "law" formulated by
Vilfredo Pareto, the "philosopher" of fascism, that income distribution
is essentially the same in all countries and at all times. Analysis has
demonstrated, however, that the "law" is mathematically inaccurate
and statistically disprovable. (It is also disproved by Pareto's Italy,
where, since the advent of fascism, the unequal distribution of income
has become more unequal.)

These theories rest on the assumption, unreal and apologetic, of an
economic order based on "natural law," in which the free play of
economic forces assures functional harmony and the "larger good."
But there is no such order. Economic forces are not eternal, they are
historical. They work, not in an unreal world of "natural law," but in
the midst of class rule and exploitation, of social-economic change and
conflict which affect the movement of economic forces, including the
distribution of income. The only "eternal" aspect of income is that,

305

3o6 The Decline of American Capitalism

under a system of private property and class rule, its distribution must
be unequal, with the producers getting the smallest share. There are
long-time movements and short-time fluctuations, but concentration
of income always tends upward*

Capitalism augments the unequal distribution of income. One of the
most competent investigators of the subject writes: "General his-
torical knowledge would lead one to infer that numerically the income
inequality must have been smaller in pre-capitalist Europe than at
present, if only for the reason that incomes were then absolutely lower
and that the lower limit of incomes is more rigid than the upper. . . .
In those countries in which personal distribution of income has been
measured for some time past the preponderance of evidence is toward
increasing inequality of incomes." ^ In the earlier stages of capitalism
there was a "broadening" of income concentration at the top of the
social pyramid, because of the emergence of rich bourgeois merchants
and speculators; but concentration was increased relatively to the
mass of the people, and kept on increasing. The curve of income dis-
tribution in capitalist society is not constant; its upward movement and
fluctuations profoundly aifect social-economic maladjustments and
disturbances. . . .

In the colonial and early national periods of the United States, the
unequal distribution of income, largely because of an agrarian economy,

* It is suggestive that engineers, who think they have a "new^" approach to economics,
merely vulgarize the older unreal concepts. Thus the Technocrats emphasize price, in
the manner of the most extreme price economists, but with a slant of their own.
Another engineer economist swallows Pareto's law: "Competition has always distributed
incomes according to some sort of a probability curve. ... In the same way we could
express the probability that any molecule in a mass of gas would have any one of various
velocities. ... In any particular nation and at any particular stage of social progress the
distribution appears to have a certain normal form about which it fluctuates but toward
which it always tends to return. In fact, the general form of this normal distribution prob-
ably has not changed greatly throughout history." H. C. Dickinson, "The Mechanics of
Recovery," S. A. E. Journal (Society of Automotive Engineers), February, 1933, p. 2.
Dickinson, who thinks the economic system "is a mechanism, a machine," argues that its
"instability can be controlled through adjustments of the mechanism itself without disturb-
ing the present competitive economic system." But the instability is a result of the working
of the capitalist system itself. And the "adjustments" needed are not mechanical: they
are social, involving class interests and class conflicts. This angle meets the engineer at
every turn. How often is he thwarted in the mechanical, functional approach toward
the construction of, say, machines and bridges, by the pressure of capitalist profit and
vested interests! How often is his suggestion for the installation of safety devices
rejected because of their cost! How little attention is paid to his arguments that tech-
nology is capable of providing plenty for all!

Class Distribution of Income 307

was not great, although increasing. It increased tremendously during
the Civil War, because of the growth of industrial capitalism and,
particularly, of speculation. A slight downward tendency was apparent
from 1870 on; but this was temporary and was accompanied by a
multiplication of millionaires — 4,000 in 1892 compared with probably
500 in 1860.^ Concentration thereafter grew swiftly, in the period of
relative economic decline; the share of the national income received
by the richest 1.6% of the population rose from 10.8% in 1896 to 19%
in 1909,* an increase of nearly 100%. In the early years of the World
War concentration mounted to new heights; incomes of f 100,000 up
rose from 2,290 in 1914 to 6,633 in 1916,^ a year of extraordinary profits
nourished by speculation and the butchery of European peoples. Con-
centration of income tended downward after the United States entered
the war, because of high taxation and the depreciation of fixed incomes
through sharply rising prices. Fortunes connected with war industries
and speculation increased enormously, however, and many new fortunes
were created. Much of the decrease in concentration was nominal, and
all of it was temporary. A large part of corporate earnings, to escape
taxation and expand production, was reinvested in the enlargement or
modernization of plant and equipment. This, in the post-war period,
accrued to the benefit of stockholders in the form of high cash and
stock dividends; the latter alone amounted to $4,240 million in 1922-23.®

The wholly temporary downward fluctuations of the war period
were used to back up the argument that income was being "equaUzed"
and "democratized." It was backed up by more "proof" in the form
of an apparent reduction of income concentration in 1921-22. But
those were depression years, when swollen incomes are deflated and
all incomes move downward. This is not, however, an indication of
more equal distribution of income, for millions of workers, farmers
and professionals stop being income receivers. Mass unemployment
augments the concentration of income. In 1932, one study reveals,
salaries and wages were 40% lower than in 1929, property income only
31% lower. Wages alone were 60.2^/0 lower, twice the loss in property
income, indicating greater concentration of income in depression!'
Moreover, throughout 1923-29, when the apologists insisted that in-
come distribution was becoming more equal, it was in fact becoming
more unequal (Table I). The concentration of income was greater
than in any pre-war period, and greater than in any other country in
the world.

While the farmers' income fell disastrously and wages almost stood
still, the income of the upper bourgeoisie (incomes of $10,000 up) rose

3o8 The Decline of American Capitalism

TABLE I

The Movement in the Distribution of Income, 1^20-2^

Incomes of

Incomes of

$10,000

and Up

$3,000 to

$10,000

Wage-Workers

Farmers

YEAR

AMOUNT

AMOUNT

AMOUNT

AMOUNT

(millions)

INDEX

(millions)

INDEX

(millions)

INDEX

(millions)

INDEX

1920

$6,761

lOO.O

$9,132

100. 0

$29,540

lOO.O

$9,394

lOO.O

I92I

5,056

74.8

7,497

82.1

23,353

79.1

5,562

59.2

1922

6,211

91.9

8,225

90.1

24,553

83.1

6,097

64.9

1923

6,812

100.8

10,689

II 7.0

28,691

97.1

6,796

72.3

1924

7,910

1 17.0

ii>257

123.2

29,051

98.4

7,092

75-5

1925

10,783

159.5

*

30,762

104. 1

7,836

83.4

1926

10,877

160.9

•

32,604

IIO.4

6,941

73-9

1927

11,642

172.2

*

32,884

III.3

7,119

75.8

1928

14,472

214.0

*

32,235

109. 1

6,830

72.7

1929

14,466

214.0

•

*

*

#

•

♦Not available. Incomes of $3,000 to $10,000 kept on rising; in the case of incomes
from $5,000 to $10,000, for which data ^re available, the index rose from 111.9 in 1925
to 145. 1 in 1929.

Source: Incomes of $3,000 to $10,000 and up — computed from Bureau of Internal
Revenue, Statistics of Income for the respective years; wages and farmers' income —
W. I. King, The National Income and Its Purchasing Power, pp. 108, 132.

114% in nine years. Substantial gains were also made by the inter-
mediate incomes of l3,ooo to $10,000. Gains were greatest in the higher
brackets. The number of persons with incomes o£ $100,000 up increased
from 4,182 in 1923 to 14,816 in 1929, compared with 6,633 ^^ ip^^j ^^^Y
reported a total income of $1,127 million in 1923 and $5,088 million in
1929.^ Income was redistributed — upward.

Any downward fluctuations in the concentration of income are not
only temporary, they must be temporary. Capitalism is based upon
private property in the means of production; and property constitutes
an economic and legal claim upon income, which must be satisfied by
the labor of the producers. The concentration of income becomes con-
stantly greater under capitalism because it is an economic system in
which wealth breeds more wealth than in other systems. Exploitation
of the workers yields surplus value and income, part of which is invested,
is capitalized, yielding more surplus value and new income. As the
capital needs of industry grow, under pressure of expansion and the
increasingly higher composition of capital, capital and capital claims
grow and impose a larger tribute on production, which does not cor-
respondingly grow. Profits and interest rose from $10,998 million in 1923
to $15,816 million in 1929, an increase of 44%; production rose only

Class Distribution of Income 309

20%. This, since ownership of capital and capital claims is highly con-
centrated, was the solid basis of the growing inequality of incomes.

By and large, the farther an occupation is from directly productive
wor\, the larger the income it yields. This is the functional or occupa-
tional aspect of class exploitation in a society based on private property.
For 1916, the Bureau of Internal Revenue reported (a practice since
discontinued) the occupational distribution of income. The statistics,
covering incomes of $3,000 up, give the following interesting results:

Labor, 2,304 returns, 0.2% of the income reported; engineers and
architects, 8,047 returns, 1.2% of the income; intellectuals (artists, writ-
ers, journalists, actors, musicians, statisticians, teachers), 13,048 returns,
1.5% of the income; farmers, 14,407 returns, 2% of the income, in a year
when agriculture was unusually prosperous; salesmen and insurance
agents, 19,517 returns, 2.1% of the income; medical profession, includ-
ing dentists, oculists, and nurses, 20,348 returns^ 2.2% of the income;
bankers, 6,518 returns, 3.2% of the income; lawyers, 21,273 returns,
3.8% of the income; managerial employees (superintendents, foremen,
and others), 38,388 returns, 4% of the income; brokers and real estate
and securities salesmen, 17,878 returns, 6.1% of the income; corporation
officers, 53,060 returns, 11.3% of the income; industrial capitalists (manu-
facturers, mine owners, and lumbermen), 27,504 returns, 11.4% of the
income; merchants, 54,363 returns, 13.2% of the income; financial capi-
talists, investors, and speculators, 85,465 returns, 26.6% of the income.®

Labor is naturally the smallest of the groups. The more parasitical
"functional" occupations (brokers, salesmen, lawyers) secure a fair
slice of the pie. Engineers and other professional workers make a poor
showing; they acquire large incomes only when they cease being pro-
fessionals and become primarily promoters and capitalist exploiters.
The largest part of the pie is eaten by the capitalists, particularly the
financial capitalists, investors, and speculators.

The direct appropriation of surplus value, of workers' unpaid labor,
is the source of capitalist income. On the basis of this a struggle goes on
to secure larger incomes and incomes from any source. . . . Political
power not only sustains class rule and the claims of property to income,
it becomes itself a source of income. Politicians plunder the public
finances and sell favors to individual capitalists, which in turn become
sources of income. . . . The vast natural resources of the United States
passed into private ownership mainly through the manipulations of
corrupt politicians. The Western railroads were built with grants of
public money and public lands, yet their ownership and income ac-
crued to capitalists. . . . The manipulation of political power for

310 The Decline of American Capitalism

personal ends became after i860 an increasingly important source of
income. . . . This was true also during the World War and the post-
war period. The conspiracy to steal the government's oil reserves in
Teapot Dome, which was only accidentally frustrated, revealed a cess-
pool of poHtical corruption. . . . Seventeen officers and directors, in-
cluding the president, of an oil company mixed up in the Teapot
Dome scandal, were sued by stockholders for the return of $6,000,000
to $8,000,000. . . . The air-mail contracts let by Postmaster General
Walter F. Brown, of the Hoover Administration were enmeshed in
conspiracy. Enormous profits were made by officers of the favored
lines; the president of one company turned an investment of $253 into
$9,514,000. . . . Contractors have been making as high as 90% profit
on army airplane orders. . . . Officers of corporations not only receive
inflated salaries and profits on their stock, but they have other means
of adding to their income. One is the "bonus" system. Five officers
of one company received bonus payments of $2,225,000 in 1929. (The
company is bankrupt.) Three officers of another company received
$2,770,000 in 1931—32. In a third company the president in 1931 re-
ceived $2,627,000 in salary and bonus payments. Stockholders' protests
have been unavailing. . . . Another bankrupt company paid $1,300,000
in 1923-32 to three bankers serving on its finance committee. . . . The
chairman of the Chase National Bank received in four years salaries
and bonuses of $1,500,000, made millions speculating in the bank's
stock while the bank itself was losing money, and upon his retirement
was voted a life "salary" of $100,000.^°. . . Corporation lawyers amass
millions by a little legal trickery here and there. . . . Corporation
directors use their influence to get business for other interests with
which they are identified, palm off property they own on the cor-
porations they serve, and speculate on inside information. . . . Bribery
is rampant in business. "There are few branches of American business
which are not honeycombed by its corroding influence. The average
politician is the merest amateur in the gentle art of graft compared
with his brother in the field of business. There is more graft in business
than there is in political life." ^^. . . Where, under these conditions,
are the "fixed distributive shares" determined by performance of pro-
ductive functions?

In 1928, wage- workers received 34.3% of the total national income,
clerical workers 6.7% (Table II) . The upper bourgeoisie, only 0.8% of
the gainfully occupied, received 21.8% of the national income; the
bourgeoisie as a whole 51.9%, although they constitute only 15.9% of
the gainfully occupied and the workers 58.5%. American workers

WORKING CLASS «rs BOURGEOISIE

200 _

ns _

1^0

50

lllllllll NUMB£R
RaOl INCOME

INCOMES OF

♦ 3^000 TO

♦ lO.OOO

^1 —

r

X
X

>r
JT
k

X
ic
Xr
J»

rKK<>

X

iVk«m>

AT

Jr

JT

a

INCOMES OF

lO.OOO UP

VLA

WAGE-WORKERS

Hfar>mers'H

&

Rzo wzi i<iza H23 iiz4 my HZ6 mr ms iw*j

XIII. CLASS DISTRIBUTION OF INCOME— 1920-29.

312 The Decline of American Capitalism

probably receive the smallest share of the national income; the share

of the English workers is approximately 45%.^^

TABLE II

Class Distribution of

the National Income,

1928

MONEY

TOTAL

NUMBER

PER-

INCOME

PER- AVER/GE

INCOME

PER-

CLASS

IN CLASS

CENT

(millions)

CENT INCOME

(millions)

CENT

Working Class:

Wage-Workers

27>750'OOo

58.5

$32,985

37.4 $1,189

$32,985

34-3

Clerical

4,750,000

lO.O

6,412

7-3 1,350

6,412

6.7

Farmers

7,400,000

15.6

6,830

7-7 923

6,830

7-1

Bourgeoisie: *

Lower

4,300,000

9.0

11,075

12.6 2,575

12,675

13-2

Intermediate

2,880,000

6.1

14,700

16.6 5,110

16,300

16.9

Upper

382,241

0.8

16,198

18.4 42,400

20,998

21.8

Total

47,462,241 100,0 $88,200 loo.o $1,858 $96,200 lOO.O

• Lower bourgeoisie, incomes below $3,000; intermediate, incomes of $3,000 to $10,000;
upper, incomes of $10,000 up.

Source and methods of computation: Money incomes, excluding "imputed" income on
durable consumers' goods, was $81,000 million (M. A. Copeland, "The National Income
and its Distribution," Recent Economic Changes, v. II, p. 763); to this is added $2,400
million for food produced and consumed on farms, and $4,807 million for realized spec-
ulative profits {Statistics of Income, 1928, p. 12). Total income is the money income plus
business savings — ^$6,600 million added to corporate surplus and an estimate of $1,400
million for reinvested earnings of non-corporate enterprises {Statistics of Income, 1928, p.
125). Workers' income is W. I. King's estimate of wages plus an allowance for other
income. Income of the upper bourgeoisie is the reported income plus tax-exempt income
and an allowance of 10% for under-reporting; this allowance of 10%, according to
Maurice Leven, Income in the Various States, p. 286, "seems to be a conservative esti-
mate, and it is quite probable that, if anything, it is too low." Speculative profits arc
included because, unlike "imputed" income, they are realized money income with which
the recipients may buy goods and services, and which profoundly affect investment,
production, and consumption, and, consequently, the whole cyclical movement.

The distribution of income is closely associated with class relations.
While it alone does not determine the character of a class (that de-
|>ends primarily upon its place in the production process), income
throws light on changes in class relations and within classes.

In 1923-29, the bourgeoisie increased its share of the national in-
come; as usual it took most of the gains o£ prosperity. There was,
however, a growing concentration of income, more than in former
years, within the bourgeoisie. Incomes of $5,000 to $10,000 rose from

Class Distribution of Income 313

455,442 in 1920 to 658,039 in 1929, or 45%, while incomes of $10,000
up rose from 226,120 to 374,032 or 65%. Concentration also increased
within the upper bourgeoisie. Incomes of $100,000 up rose from 3,649
to 14,816 or 306%, and incomes of $1,000,000 up rose from 33 to 513
or 1,454%. ^^^ ^^^ income of the million-dollar-income group rose
from $727 million in 1920 to $4,368 million in 1929, an unprecedented
absolute and relative increase.^^ At the same time the upper bourgeoisie,
and to a lesser extent the intermediate bourgeoisie, became more mark-
edly a class of financial and speculative capitalists. As finance capital
and the banks strengthen their control over industry, financial cor-
porations "earn" the largest profits; this is an expression of the in-
creasingly speculative character of industry under the conditions of
monopoly capitalism. The upper bourgeoisie is separated from direct
participation in production; as a class of financial and speculative
capitalists (with a large element of passively parasitic rentiers) it
roams the field of industry, plundering where it may. In 1920-29, the
upper bourgeoisie "earned" $24,064 million in realized speculative
profits, of which $8,000 million were "earned" in the two years 1928-
29. They are the masters of industry.

The middle class, the intermediate and lower bourgeoisie with in-
comes below $10,000, made great gains both in numbers and in income;
the income gains ranged from 40% to 50%. It was the heyday of the
middle class. But this class is no longer the old middle class of inde-
pendent small producers. In 1924, 125,559 individual, non-corporate
manufacturers reported net profits of only $380 million, compared
with $3,437 million for corporate enterprises. Of the total net profits
of $4,755 million reported by 1,645,971 individuals in business (an
average of only $2,900), $3,150 million was "earned" in trade, amuse-
ments, hotels, professional service, and similar occupations. In corporate
manufactures, 43,984 of the smaller producers, 50% of the total, made
only 1.7% of the aggregate net income, while 967 of the larger pro-
ducers, 1.1% of the total, made 65.6% of the net income; in 1929,
1,289 of the larger producers, 1.3% of the total, made 75.6% of the
aggregate net income.^* Thus the small, independent industrial pro-
ducers, the essential element in the old middle class, merely linger on,
an economic anachronism deprived of real power. Their importance
steadily decreased in 1920—29. The real gains were made by the "newer"
elements of the middle class, concentrated in the intermediate bour-
geoisie with incomes of $3,000 to $10,000. More than half of them,
the most important group, are corporate employees; in 1928 about
$7,000 million of the $14,700 million income of the intermediate hour-

314 The Decline of American Capitalism

geoisie was derived from salaries, commissions, and directors' fees.
Another $788 million came from dividends and possibly $1,000 million
from speculative profits. This group, particularly those in the income
class of $5,000 to $10,000, performs the "professional" function of man-
agement in corporate industry, because of the separation of ownership
from management by monopoly capitalism and the multiplication of
stockholders. It is directly dependent upon and is wholly identified
with the interests of monopoly capitalism — the real "new" middle
class. Most of the elements of the old middle class, the small producers,
merchants, and professionals, are concentrated in the lower bourgeoisie.
Their income gains were considerable; but they were accompanied
by an intensification of competition and a pressure for jobs which
created increasing class insecurity, now evident in the crisis which
afflicts the small producers and storekeepers, the technicians and pro-
fessional workers. For the growth of the middle class, identified with
all the maturing elements of capitalist decline, was a final burst of
splendor before the coming of darkness. Many middle-aged workers,
thrown out of work by technological changes, took their petty savings
and became small storekeepers, sharpending the struggle to survive.
The automobile gave many the chance to become "independent"
owners of garages and gasoline stations. Rationalization of industry
gave work to many technicians, but also developed the conditions of
eventual displacement. Much of the middle class growth, however,
represents cancerous elements of social-economic parasitism, multiply-
ing the burdens upon productive labor. The more parasitic occupa-
tions (advertising, merchandising, speculation, the law) fattened upon
an inflated prosperity. But the middle class grew faster than its eco-
nomic opportunities. The number of students in universities, colleges,
and professional schools, all of them middle-class aspirants, grew from
521,754 in 1920 to 919,381 in 1928,^^ creating a constantly greater mass
of actually and potentially unemployed and unemployable "intellec-
tuals." They now swell the surplus population.

The "fixed productive share" of the farmers moved downward. In
the "deflation" of 1921, their share of the national income fell disas-
trously; during the next four years a small part of the loss was pain-
fully recovered, only to slump again in the peak years of prosperity
1926-29. The farmers increased their productivity over 30% and de-
creased only 25% as a proportion of the gainfully occupied, yet their
share of the national income fell to one-half the pre-war share. The
farmers' share (including food produced and consumed at home)
was only 7.1% in 1928, although they were 15.6% of the gainfully

Class Distribution of Income 315

occupied. And the fall was absolute, affecting per-capita income. The
farmers' share of the national income began to fall after the Civil War
(defeat of the slave power was also an agrarian defeat, as it assured the
supremacy of capitalist industrialism). The fall was temporarily re-
versed by rising prices after 1900, up to and including the World War;
but it reasserted itself on a more devastating scale during 1921-29 and
the 1930—34 depression. At the same time, the farmers' mortgage
burden rose from $7,857 million in 1920 to 19,468 million in 1928,
exclusive of over $3,000 million of other debts. The burden was all
the greater because of the fall in agricultural prices and income, and
in the "value" of farms from $71,791 million to $58,141 million. As a
business proposition, farming was almost a total loss; the rate of return
on operators' net capital investment fell from 5.4% in 1919 to 3.7%
in 1928, with only 1.6% as the average for 1920-28.^® Non-farmer
elements increased their tribute from agriculture; payment of interest
to non-farmer mortgage holders practically trebled between 1909 and
1927.^'' The sharp drop in the farmers' share of the national income
expressed the crisis and economic decline of agriculture. But this did
not affect all groups alike. The inequality of agrarian incomes was
augmented. A small upper layer of capitalist farmers was relatively
prosperous. Owners of leased farms enlarged their share of agricul-
tural income 60% between 1909 and 1927. "Retired" farmers drew an
increasingly large real income from their $1,000 million of farm mort-
gages.^^ The mass of farmers were, however, impoverished, expressed
in the growth of tenancy from 38.1% in 1920 to 42.4% in 1930,^® the
largest increase in thirty years. By 1932 the farmers' gross income had
fallen to 44% of the 1929 level; ^° the fall in net income was even
greater. The result is a profound change in agrarian class relations;
the poor farmers, the majority of tenants and small owners, are defi-
nitely thrust into the peasant class, while the position of the inter-
mediate middle class farmers becomes continuously more precarious.*
All through this period, while income was being "equalized" and
"democratized," wages constituted a diminishing proportion of the
national income. The wage-workers' share fell from more than 40% in
1920 to 37.4% in 1928. (Their share in the total national income was

* Yet reformers urge "Back to the land!" as a cure for unemployment. Among the
most miserable farmers are many who took that advice in the pre-war days. It is sug-
gestive that what is now urged is "subsistence farms," that is, farms which are to
yield a man and his family merely enough to keep from starvation. Other reformers,
however, insist that "farm relief" depends upon the displacement of 2,000,000 more
farmers!

3i6 The Decline of American Capitalism

still lower, only 34.3% in 1928.) Part of the decrease was due to the
fact that, for the first time in American history, the number of workers
increased only slightly as a ratio o£ the gainfully occupied, while the
better-paid industrial workers decreased. And increasing unemploy-
ment cut into the workers' share. But the larger part of the decrease in
the workers' share of the national income was due to the fact that
wages did not move upward in line with productivity, production,
and the national income, while the bourgeoisie appropriated constantly
more of industry's proceeds as capital and capital claims were aug-
mented. The majority of working class incomes were at or below the
poverty line. In the "paradise" of the Ford automobile plants, the
average family income of a worker in 1929 was only $1,711 yearly!
The family income of the majority was even smaller. Inequality of
incomes within the working class was intensified, especially in the
case of the skilled union trades and the unemployed. This inequaUty,
along with craft and racial prejudices, helps to create and maintain
divisions among the workers, which the employers exploit.

The concentration of income means poverty among the many and
swollen incomes among the few; underconsumption among the masses
and conspicuous overconsumption among the classes. It is urged that
the national income, and this means essentially the existing productive
equipment, is insufficient to abolish poverty. Thus Irving Fisher said
in 1928: "If the share of the richest class were divided up to increase
the share of the lowest income group, comprising nearly two-thirds of
the population, it would not go far." Another economist agreed, and
added: "A basic trouble is that, in spite of our unprecedented wealth,
our national product is not yet large enough to supply anything but
the barest essentials to everyone, even if it were equally divided." ^^
That is much too simple, and evasive. For in 1929, a more equal dis-
tribution of the national income (inconceivable under capitalism)
would not merely have wiped out the worst forms of poverty, it would
have materially improved the living conditions of the masses as a
whole. This was all the more possible if wasteful, useless goods and
services had been replaced with more necessary things, and if the
enormous excess capacity of industry had been utilized. The mere
elimination of these social-economic wastes, inseparable aspects of the
social relations of income inequality, would enormously increase real
social income and mass welfare. All arguments to the contrary are
mere repetitions of Pareto's "law" that welfare can be increased only
by raising the national income — a justification of capitalist distribution.
It is necessary, of course, to raise the total income. But the unequal

Class Distribution of Income 317

distribution of income is interlocked with all the class-economic forces
which prevent a full use of the existing and potential social forces of
production: low wages, excess capacity, recurrent cyclical crises and
breakdowns, limitation of technological progress, and the mass dis-
employment of the decline of capitalism.*

Inequality of income is not merely an expression of capitalist exploi-
tation and injustice. It is itself an economic force, expressing and ag-
gravating all the maladjustments and disturbances of capitalist
industry :

Disproportionate development of production and consumption:
Unequal distribution of income is firmly based on the appropriation of
surplus value and its realization as profit, the accumulation of capital.
This means low wages and high profits, depressed mass purchasing
power and consumption, the lag of consumption behind the growth
of production.

The increase in capital and capital claims: While the increase in
capital and capital claims augments the concentration of income, this
in turn increases capital and capital claims, as surplus income must be
invested, anywhere, anyhow.

Excess capacity: Unequal distribution of income depresses consum-
ing income in favor of investment income. More of the proceeds of
industry go into capital goods than into consumption, markets are
relatively restricted, and excess capacity and competition are aggra-
vated.

Surplus capital : As investment income grows more thaa consuming
income, and capital and capital claims grow faster than production,
a surplus capital arises, in spite of the constantly greater capital needs
of industry. This surplus, whether used for unnecessary investment or

* This sort of stuff still appears in textbooks used in many American universities:
"If incomes were equalized, all would be poor. . . . The idle rich and other loafers
are more conspicuous than numerous, and if they were all set to useful labor the total
output of industry would not be substantially increased nor would the burden of toil
of the rest of the people be much lightened. ... A considerable part of the income
of the rich is already being used directly or indirectly for the benefit of the poor in
the form of huge donations to philanthropic, scientific and educational institutions, in
the form of taxes, and in the form of savings which add to the industrial equipment
of society and thereby increase the effectiveness of labor. . . . The possible gains to
the poor from increasing the effectiveness of labor are infinitely greater than the possible
direct gains from equal distribution of wealth and income." L. A. Rufener, Price, Profit
and Production: Principles of Economics (1928), pp. 803-04. But why can't the "poor"
own the industrial equipment? And why not add that the rich make work for the poor —
don't they hire servants, spend millions on dress and jewels, on entertainments and
debauchery, give work to the makers of yachts, Rolls-Royces, and private railroad cars?

31 8 The Decline of American Capitalism

for speculation, aggravates the maladjustments and disturbances of
capitalist production.

Speculation: Itself partly a result of the concentration of income,
speculation increases concentration and all its disturbing effects.

Increasing unemployment: As a result of all the preceding develop-
ments, unemployment tends constantly to grow. Millions of workers,
who might be adding to the national income, are deprived of work
and of the power to consume. This, in its form as mass disemployment
in the epoch of the decline of capitalism, is bound up with more
definite limitation of technological progress.

The export of capital and imperialism: Surplus incomes and capital,
excess capacity and limitation of markets intensify the struggle for
foreign markets to absorb surplus capital and goods. Itself interlocked
with the concentration of income, imperialism augments concentration
by making an increasingly larger part of the national income depend-
ent upon the profits of foreign enterprises, which provides no work or
income to "our own" workers.

Thus the concentration of income not only deprives the workers
of a larger immediate share in income and consumption, it prevents
a fuller development of production, income, and consumption in
prosperity, and thrusts them downward in depression. For unequal
distribution of income is the synthesis of all the forces of cyclical crisis
and breakdown.* Unequal distribution is dynamic, not stationary; its
variations, within the limits of the long-time upward trend, correspond
closely with the cyclical movement of prosperity and depression. As

* "The theory [of Marx] rests on the supposition that wages are a fixed quantity,
always near the minimum of subsistence; and further, that labor's proportion of the
national income is ever decreasing. . . . Marx' theory is subject to two conditions:
(i) that there are only two classes in existence, capitalists and proletariat; and (2) that
wages are rigidly fixed and near the minimum of subsistence." L. V. Birck, "Theories
of Overproduction," Economic Journal, March, 1927, pp. 22, 25. After setting up this
man of straw, Prof. Birck cleverly demolishes it. But Marx never said that wages are
fixed or that there is a fixed minimum of subsistence: that was the Rodbertus-Lassalle
"iron law of wages," specifically repudiated by Marx. Wages may and do rise, under
certain conditions; this is itself an aspect of the movement of capitalist contradictions
and antagonisms. Wages tend toward a minimum of subsistence, but this is an historical
category subject to change; the minimum rises in the epoch of the upswing of capital-
ism and falls in the epoch of decline. The workers' share of the national income does
decrease; but this is not conditioned by fixed wages and minimum of subsistence, for
while wages may rise, profits and capitalist income rise still more. Marx never said there
are only two classes (he recognized the existence of landlords, of farmers, of the middle
class); but industrialism dominates the class-economic relations of contemporary society,
and industrialism is dominated by the relations between the proletariat and the capitalist
class, whose antagonism shapes, in general, the movement of other classes.

Class Distribution of Income 319

prosperity moves upward, the concentration of income is augmented
from three sources: more intensive production and realization of
surplus value; speculative profits, which are both a redistribution of
previously realized surplus value and a manufacture of new claims
upon production; and the increasing "profits" of middle class services.
Even if wages and mass purchasing power rise, they shrink relatively
to the income gains of the bourgeoisie, to the mounting accumulation
of capital and capital claims. Both investment and speculation aggra-
vate old disproportions and create new ones. The moment comes when
prosperity crashes. The tremendous increase, in 1927-29, in the in-
comes of the upper and intermediate bourgeoisie, while wages were
nearly stationary and farmers' income moved downward, inexorably
prepared the conditions of breakdown and depression.

Some bourgeois economists admit that cyclical fluctuations originate
in "the adverse balance of consumption over production," in the
"deficiency" of consumer income distributed by industry .^^ But they
insist that the deficiency is not the result of appropriation of profits and
concentration of income, that stability is possible without interfering
with them. Yet, if industry does not distribute enough of its proceeds
as consumer income, is it not because profits * take more than wages ?
And if investment income increases more than consumption income,
is it not because unequal distribution of income favors investors and
speculators? The uses of profits are threefold:

1. Consumption income for the appropriators of profits, their tribute
upon labor and production.

2. Investment income for the progressive expansion of production,
a conversion of part of the proceeds of industry into "capital" equip-
ment, which is necessary under any social system.

3. A surplus which becomes excessive investment and speculation,
instead of consuming power.

Even the consumption of the appropriators of profits and their
"necessary" investments create maladjustments and disturbances, for
they are carried out haphazardly, without regard to the balanced needs
of industry. (This is apparent, for one thing, in the constantly greater
dependence of production upon luxury consumption.) The malad-
justments and disturbances are enormously aggravated, however, by

* In this connection, "profits" includes all forms of tribute levied upon labor — ^profits,
interest, rent, "fancy" corporate salaries, excessive charges for professional services, etc.
That part of professional income vv^hich represents services to workers is a vi^ithdravi^al of
labor consumption; if invested by the professional, it adds to the deficiency in con-
sumption.

320 The Decline of American Capitalism

the surplus capital involved in excessive investment and speculation:

it means an accumulating deficiency in consumption, expansion of

production beyond the capacity of markets, and growing speculative

violence. For a time, an unstable balance is maintained by a variety

of means; but the balance is eventually upset, and crisis and depression

ensue.

Unequal distribution of income is not, however, an independent
factor. It expresses all the underlying relations of capitalist production.
Hence the liberal economists are stressing secondary and not primary
causes when they urge more equal distribution to prevent cycHcal
breakdowns. (This theory is identified with John A. Hobson; while
his emphasis is wrong, his analysis is as suggestive as his earlier, the
pioneer, study of imperialism.) For the social relations of capitalist
production make an increasing concentration of income inevitable,
because of the exploitation of labor and the multipHcation of owner-
ship claims. Ownership and exploitation are responsible, not only for
income concentration, but also for its disastrous economic results.
More equal distribution, under capitalism, could favor only the middle
class, and would simply whet its appetite for ownership, investment,
and speculation. Essentially the same result follows if income distribu-
tion favors the upper layers of the workers, who would save more for
the "rainy day," the savings becoming "institutional" means for invest-
ment and speculation. It is necessary to change the social relations of
capitalist production.*

As the distribution of income is inseparably identified with the
class-economic relations of capitalist production, it is profoundly
affected by the decline of capitalism. The lower level of the national
income makes more ruthless the efforts of those in economic and
political power to get a larger share. Labor's share moves downward,
because of lower wages and the millions of disemployed workers.
Capitalist decline strengthens the tendency toward an increase in the
most parasitic form of income, the interest on private and public debts.
Corporate debt mounts as excess capacity and capital claims rise and
production falls. Public debt mounts as government revenues fall and

• Unequal distribution of income exists in the Soviet Union. But it is enormously
smaller than in capitalist society; there is no concentration of income in the real sense.
Moreover, what income inequality exists has no disastrous economic results, for there
is no private ownership in the means of production, no capitaUst investment and specula-
tion: income cannot become private capital, a source of economic maladjustments and
disturbances, and production is managed according to plan. While income inequality
exists in the earlier stage of socialism, the drive is toward continual modification and
its final abolition under communism.

Class Distribution of Income 321

expenditures to "revive" industry rise (and this includes greater ex-
penditures on armaments because of sharpened imperialist rivalry).
As imperialism grows, a larger part of capitalist income flow^s from
foreign investment and exploitation; this means more income concen-
tration, for after capital is exported its interest or profit yield creates
no income for other classes of the "home" population. From 1900 to
1 914, the concentration of income in Great Britain w^as increased by
the income from accumulated overseas investments.^^ Concentration
is also increased in the capital importing countries, for in crisis and
decline the interest is paid by extorting more from the workers and
peasants, in higher taxes and lower wages. And, unlike the experience
in the epoch of capitalist upswing, labor's share of the national income
now tends toward an absolute fall. This is particularly marked under
fascism, which recognizes that incomes must be limited, thrusts the
burden upon the masses, deprives them of the means of resistance,
and cuts down on relief and the social services. The movement in the
distribution of income becomes one of the most explosive elements of
the decline of capitalism.

CHAPTER XVIII

The Multiplication of Stockholders

Jl HE concentration of income has strong roots in the concentration
of stock ownership, the most characteristic form of property in modern
capitaHst society. In the ballyhoo of Niraism, of state capitalism, there
is nothing about "democratizing" corporate ownership and thus realiz-
ing "industrial democracy," a new social order. Yet this was the heart
of the "economic revolution" proclaimed by the pre-1929 "new capi-
talism," and the only one of the older claims which does not reappear
in the new ballyhoo. It was all very simple: corporate ownership was
being democratized by the multiplication of stockholders; the stock-
holdings of large investors, of the capitalists, had decreased, were still
decreasing, and would continue to decrease; in the redistribution of
stock ownership the wage-workers, because of their increasingly
higher wages and larger share of the national income, were the largest
beneficiaries. Workers were becoming capitalists, the capitalists becom-
ing workers. Consequently: "There is no doubt whatever that Ameri-
can labor is headed toward the control of American industry." ^ This
was a prophecy made in 1926; where now are labor's stockholdings
and control of industry ?

The multiplication of stockholders is an indisputable fact. But it
was, and is, grossly misunderstood and exaggerated. Thus, in 1929,
the President's Committee on Recent Economic Changes stated that
"the number of shareholders in the country's business enterprises has
grown from about 2,000,000 to 17,000,000."^ The statement implied
individual stockholders, although the figures mean only boo\ stock-
holders, whose names may appear scores of times in the lists of as
many corporations. Book stockholders multiplied to a truly great
extent, from 4,400,000 in 1900 to 18,000,000 in 1928. The greatest up-
ward movement took place during and shortly after the World War;
book stockholders increased an average of 12% yearly in 1917—20,
6.2% in 1920-23, and 4.5% in 1923-28.^ The smallest rate of growth
was in the period after 1923, when the prophets of the "new capital-
ism" were insisting that corporate ownership was being rapidly "dem-
ocratized." And book stockholders multiply more rapidly than
individual stockholders. If each of 3,000,000 small investors owns

322

The Multiplication of Stockholders 323

one share of stock worth fioo in various corporations, they figure as
3,000,000 book stockholders; i£ 100,000 large investors each owns
$300,000 worth of stock distributed over thirty corporations, they also
figure as 3,000,000 book stockholders, although their total holdings
are $30,000 miUion as against the $300 miUion o£ the other group.
According to a statistician of the United States income-tax bureau, there
were, in 1927, not more than 3,300,000 individual stockholders, who
received dividends ranging from $5 to $15,000,000. The distribution
was:

In the group with net incomes over $5,000, there were 516,000 stock-
holders, who received $3,762 million in dividends.

In the group with net incomes below $5,000, there were 484,000
stockholders, who received $493 million in dividends.

In the group of over 40,000,000 persons gainfully occupied, not filing
income-tax reports, there were 2,300,000 stockholders, who received
$45,000,000 in dividends.*

By 1928, the number of stockholders had probably grown to 3,750,000,
compared with 1,250,000 in 1900. This was a substantial increase, but
its significance was more absolute than relative. For the increase in
stockholders, corresponding with that in corporate enterprise, was not
much larger than the increase in the number of persons gainfully
occupied, and was smaller than the increase in production and cor-
porate wealth. Thus the multiplication of stockholders does not mean
more "democratic" ownership of industry. Its real meaning lies in the
important class-economic changes in capitalist production, in the
development from small-scale to large-scale industry and from the
older capitalism to monopoly. The multiplication of stockholders is
interlocked both with the upswing and the decHne of capitalism.

Capitalist production moves inexorably toward large-scale industry,
with capital needs beyond the resources of individual capitalists. Cor-
porations become increasingly ascendant, combining small scattered
capitals into one enterprise. Small corporations merge into larger, and
these merge into monopolist combinations, which use the capital re-
sources of multitudes of stockholders. Ownership, management, and
control are separated. This is a fundamental change in the forms of
capitalist property, once wholly individual : impersonal, corporate prop-
erty becomes dominant. According to one bourgeois economist:

"Most fundamental of all, the position of ownership has changed
from that of an active to that of a passive agent. In place of actual
physical properties over which the owner could exercise direction and
for which he was responsible, the owner now holds a piece of paper

324 The Decline of American Capitalism

representing a set of rights and expectations with respect to an enter-
prise. . . . He bears no responsibility for the enterprise or its physical
property. It has often been said that the owner of a horse is responsible.
If the horse lives he must feed it. If the horse dies he must bury it.
No such responsibility attaches to a share of stock. . . . The value of
an individual's wealth is coming to depend on forces outside himself
and his own efforts. Instead, its value is determined on the one hand
by the actions of the individuals in command of the enterprise — indi-
viduals over whom the typical owner has no control; and on the other
hand, by the actions of others in a sensitive and often capricious
market." =

The implications, which the economist does not draw, are clear:
capitalist property is no longer private property in the full sense of the
term; it is social property, expressing an objective socialization of pro-
duction, while ownership rights and claims remain individual. Thus
modern capitalist property is wholly parasitic. The antagonism between
social property and individual appropriation aggravates all the malad-
justments and disturbances of capitalist production. It also conditions,
in its class-economic aspects, the possibility of and the struggle for a
new social order.*. . .

The multiplication of stockholders, because of the transformation of

• Corporate property involves: "An enormous expansion of the scale of production and
enterprises, which vv^ere impossible for individual capitals. . . . Capital, which rests on
a socialized mode of production and presupposes a social concentration of means of
production and labor powers, is here directly endowed with the form of social capital as
distinguished from private capital, and its enterprises assume the form of social enter-
prises as distinguished from individual enterprises. It is the abolition of capital as private
property within the boundaries of capitalist production itself. Transformation of the
actually functioning capitalist into a mere manager, an administrator of other people's
capital, and of the owners of capital into mere owners, mere money capitalists. . . .
Total profit is henceforth received only in the form of interest, that is, in the form
of mere compensation of the ownership of capital, which is now separated from its
function in the actual process of production, in the same way in which this function, in
the person of the manager, is separated from the ownership of capital. The profit now
presents itself as a mere appropriation of the surplus labor of others, arising from the
transformation of means of production into capital, that is, from its alienation from
its actual producers, from its antagonism as another's property opposed to the individuals
actually at work in production, from the manager down to the laborer. . . . The func-
tion of management is separated from the ownership of capital, and labor, of course,
is entirely separated from the ownership of means of production and surplus labor.
This result of the highest development of capitalist production is a necessary transition
to the reconversion of capital into the property of the producers, no longer as the private
property of individual producers, but as common property, as social property outright."
Karl Marx, Capital, v. Ill, pp. 516-17.

The Multiplication of Stockholders 325

individual productive property into corporate property, is a character-
istic expression of the upswing of capitalism. Independent capitalists,
where they are not totally wiped out, become stockholders in the cor-
porations which absorb their enterprises. Individuals who formerly
might have been independent enterprisers become, under the new
conditions, officers or supervisory and technical employees of corpora-
tions;, in which they may acquire stock. The number of these employees
is greatly augmented by monopoly capitalism. Another source of
stockholders are the merchandising and advertising employees and
professional workers, and all sorts of other middle class elements
which have money to invest. Underlying these developments was the
upward movement in production, the increasing accumulation of
capital, and the multiplication of capital claims, making possible more
widespread ownership of stock.

This multiplication of stockholders is also identified with large-
scale industry's increasingly greater capital requirements, not only
absolute but relative, as capital investment rises more than production
and profits. The fall in the rate of profit augments the investment of
capital, and there is a drive to get capital anywhere, anyhow (includ-
ing the small savings of workers, in the form of institutional invest-
ment). One aspect of the growth of monopoly is the "recapitalization"
of corporate combinations, which is successful only if their stock is
absorbed by a multitude of stockholders. At the same time, efforts to
overcome the fall in the rate of profit involve the plundering of stock-
holders. There is a great turnover among small stockholders. Large
corporations augment their profits at the expense of the smaller. Small
stockholders are plundered by promoters and financial capitalists, who
unload securities upon the gullibles and expropriate small investors in
corporate reorganizations. A large part of the profits of holding com-
panies come from plundering the stockholders of underlying corpora-
tions. The pressure of surplus capital results in the organization of
many fly-by-night concerns, and more stockholders. Finally, the high-
pressure salesmanship of investment bankers and brokers swells the
stockholding multitudes.

These developments do not, however, break down the monopoly
of ownership. For corporate ownership is concentrated in the upper
bourgeoisie. But the character of this class changes. "It is now composed
primarily of financial capitalists, whose resources are invested in scores
of enterprises, none of which they own but all of which they control.
Their capital, unlike that of the industrial capitalist, is not bound up
directly v^th production; a mass of paper rights and claims upon

326 The Decline of American Capitalism

production and income, it migrates from enterprise to enterprise, in
line with business conditions, the prospects of profit, and the needs
of speculation. The Rockefeller interests, originally associated wholly
with Standard Oil, came to include hundreds of industrial, utility, and
financial corporations throughout the world. But though the financial
capitalists seldom own any large part of a corporation's stock, they
control its destiny, while management is the function of hired em-
ployees: the more stockholders there are in an enterprise, the more
ownership is separated from control, the easier it is for a minority to
usurp control. And this control by a financial clique ruthlessly tramples
upon both the stockholders and rival minority cliques. This was an
early accompaniment of the growth of large corporations. A classic
illustration was the meeting, in 1902, of the stockholders of the Metro-
politan Street Railway Company of New York City. The chairman
of the meeting was P. A. B. Widener, millionaire capitalist, director
in the United States Steel Corporation and other affiliated enterprises
of the House of Morgan. The meeting went on in this manner:

widener: The tellers will now take the vote.

stockholder: We wish a discussion of the matter. Let us discuss it
before we vote for it.

widener: Well, you can vote for it and discuss it afterward.

STOCKHOLDER [amazed, incredulously'\ : Do you mean to say that
we must vote and then discuss?

ANOTHER stockholder: You wish us to be executed first, then tried,
is that it? We object to voting before discussion.

WIDENER [l^ored, smilingly] : Well, sir, you may withhold your vote
until after the discussion. The Chair orders that the vote shall be
taken. [It is.]

These methods have not changed in essentials; they are merely more
formal, more labyrinthine, smeared with the holy oil of "service."
In fact, stockholders to-day are even more helpless, because of their
increasing numbers, the greater size of corporations}, and greater use of
holding company devices. The financial oligarchy has tightened its
control. And this oligarchy is merely interested in the production of
profits and speculation, in the plunder of corporations and their stock-
holders, including stockholders of the upper bourgeoisie itself; for in
this the oligarchy knows no class brothers or sisters. Thus it increases
its share of profits, of the surplus value produced by labor, in spite
of the tendency of the rate of profit to fall. The separation of manage-
ment and control by the multiplication of stockholders, arising out
of the progressive socialization of production, the transformation of

The Multiplication of Stockholders 327

individual property into social corporate property, becomes a means
for the intensification of capitalist plunder and capitalist disorganiza-
tion. . . .

There was no decrease in the stockholdings of the upper bourgeoisie
(Table III) . On the contrary, dividends received by incomes of $10,000

TABLE

III

Distribution

of Dividends by

Inco

me Groups, igiy-2<)

$3,000 to

$5,000

$5,000

to $

10,000

$10,000

Up

YEAR

AMOUNT

PER-

AMOUNT

PER-

AMOUNT

PER-

(millions)

CENT

(millions)

CENT

(millions)

CENT

I917

$128

*

$230

*

$1,570

*

I919

198

*

322

*

1,800

«

I92I

230

#

349

*

1,565

*

1922

227

8.6

356

135

1,818

69.0

1923

421

12.8

346

10.5

2,095

63.6

1924

380

II. I

292

8.5

2,325

67.9

1925

*

•

321

8.0

2,724

67.9

1926

•

*

435

9.8

3,146

71.0

1927

*

*

430

9.0

3,331

70.0

1928

*

*

438

8.5

3,571

69-3

1929

«

*

506

8.8

3,740

64.9

* Not available. Total dividend payments by corporations were not compiled for
19 1 7-2 1. Income-tax changes in 1925 substantially reduced the number of individuals
required to report in the brackets below $5,000.

Percentages are based on total dividend payments less intercorporate dividends.

Source: Computed from Bureau of Internal Revenue, Statistics of Income for the
respective years.

Up were 140% higher in 1929 than in 1917; the slight falling tendency
in the early post-war years was reversed after 1921. At the same time
the upper b6urgeoisie, especially the rentiers in this class, invested
heavily in tax-exempt government bonds, amounting to $5,373 million
in 1929,^ in addition to more millions invested in foreign securities.
Statistically, however, the share in dividends of the upper bourgeoisie
was a trifle smaller than in the pre-war years. But this was only appar-
ent, not real. For the dividends reported by incomes of $10,000 up is
not the total they receive; they are underreported to evade the surtax.
Stockholdings are distributed among other members of the family, in
the form of gifts, the creation of trusts, or partnerships. (These part-
nerships, although clearly a tax-dodging device, have been declared
legal by the courts.) This part of the dividends of incomes of $10,000
up are reported in the lower brackets. According to a statistician of the

328 The Decline of American Capitalism

income-tax bureau, there were, in 1924, in the income groups below
$2,500, 200,000 stockholders who received dividends either from inheri-
tances or trusts/ Another tax-dodging device is the personal holding
or investment company (one banker maintained six such companies!),*
which receives dividends, reinvests them, and avoids the surtax. Such
dividends appear as part of intercorporate dividends, but are really
received by the upper bourgeoisie. Increasing tax-dodging created a ficti-
tious relative decrease in the dividends and stockholdings of the upper
bourgeoisie.

There were fluctuations in the share of dividends received by the
intermediate and upper bourgeoisie, mainly because of temporary shifts
in income from one class to the other. But the movement was definitely
upward, if for no other reason than because these two classes increased
numerically more than the total of gainfully occupied persons. The
most significant gains, from a class angle, were scored by the inter-
mediate bourgeoisie, especially those with incomes of $5,000 to $10,000.
This is because the most important part of this class is composed of
officers and managerial employees in corporate industry; they steadily
augment their ownership of stock (often received as a bonus) in the
corporations which employ them, and are encouraged to do so by their
financial masters to make them more "loyal." In the middle class as a
whole, stockholdings were increased by employee stock ownership,
by the drive of public utilities to sell stock to customers (to create
"reserves" of public opinion against immediate government regulation
and possible government ownership), by the stimulation of get-rich-
quick appetites.

The workers made some small gains in stock ownership, but they
were absolute, not relative. And their share was insignificant: cor-
porate ownership is a monopoly of the bourgeoisie (Table IV). The
working class, wage and clerical, while 68.5% of the gainfully occu-
pied, owned only $750 million of corporate stock, an insignificant stake
of 1.2%. The bourgeoisie, only 15.9% of the gainfully occupied, owned
$61,137 million, a monopoly stake in corporate ownership of 97.8%.
Of this, the largest share was owned by the upper bourgeoisie, 0.8%
of the gainfully occupied : $48,322 million, or 77.3%. That is, however,
a minimum; their real share was at least 80%. For a part of the divi-
dends received by the lower income brackets appear there only because
of the tax-dodging devices of the upper bourgeoisie; another part
was reported by individuals with gross incomes over $5,000, but no net
income; and a third part is credited to intercorporate dividends, because
of the use of personal investment companies. The share of the lower

The Multiplication of Stockholders

TABLE IV

Class Distribution of Corporate Ownership, igiS

329

STOCK

NUMBER

STOCKHOLDERS

OWNED

PER-

CLASS

IN CLASS

IN CLASS

(millions)

CENT

Working Class:

Wage-Workers

27,750,000

600,000

$438

0.7

Clerical

4,750,000

400,000

312

0.5

Farmers

7,400,000

600,000

625

I.O

Bourgeoisie:

Lower

4,300,000

1,000,000

2,188

3-5

Intermediate

2,880,000

825,000

10,627

17.0

Upper

382,241

325,000

48,322

77.3

Total

47,462,241

3,750,000

$62,512

lOO.O

Source and methods of computation: In 1928, corporations disbursed $7,073 million
in dividends, of which $1,916 million were intercorporate dividend payments. Among
the 4,070,851 income-taxpayers there were 791,579 stockholders, who received a total
of $4,350 million in dividends, distributed as follows: incomes below $5,000, $341
million; incomes of $5,000 to $10,000, $438 million; incomes of $10,000 up, $3,571
million. (Statistics of Income, 1928, pp. 11-12.) The balance of $807 million was
received by non-income-taxpayers, non-profit institutions, and foreign stockholders.
Non-profit institutions (endowments, foundations, churches) greatly increased their
stockholdings after the World War. Foreign holdings in American corporations, which,
in 1912, constituted 9% of the stock of representative corporations, and were nearly
wiped out in 1915-20, became again important; in 1922, foreigners owned 1.5% of
common and 2.5% of preferred stock. (New York Times, January 5, 1913; Federal
Trade Commission, National Wealth and Income, p. 156.) These holdings rose after 1922,
because of American prosperity and European economic decline. It is assumed that
non-profit institutions and foreign stockholders received $450 million in dividends.
Another deduction must be made: individuals with gross incomes over $5,000 but no
net income received, in 1928, $88,000,000 in dividends, which do not appear in
the income-tax total. That leaves approximately $269 million received by individuals
not filing income-tax reports. All incomes below $5,000 received approximately $610
million in dividends; of this amount, probably $350 million went to stockholders with
incomes of $3,000 to $5,000, who are not wage or clerical workers. Of the $260
million in dividends received by incomes below $3,000, not all of whom are workers,
the probable distribution was: wage-workers, $30,000,000; clerical workers, $25,000,000;
farmers, among whom there was a prosperous upper layer, $45,000,000; lower bour-
geoisie, $160,000,000. Of the dividends received by incomes of $3,000 up, $788 million
went to stockholders with incomes of $3,000 to $10,000, and $3,571 million to
stockholders with incomes of $10,000 up, the upper bourgeoisie. The total of the
upper bourgeoisie is underestimated, because of underreporting and the tax-dodging
devices of trusts, partnerships, and personal investment companies. Stock owned is
secured by applying percentage of dividends to total stock owned by individuals.

330 The Decline of American Capitalism

and, particularly, the intermediate bourgeoisie was substantial. It
was the middle class which scored real gains, not the workers; and
this was admitted by one bourgeois writer in an unguarded moment:
"Labor makes an absolute, not a relative gain in corporate ownership.
What we really have is a vast middle class rather than a proletarian
movement." ^

Employee stock ownership was also essentially a middle class move-
ment, in spite of some of its specific labor aspects. Two claims were
made: that employee stock ownership is peculiarly American, and
that it favors the workers. Both claims were false. Employee stock
ownership exists in all highly industrial nations. In England, where
the movement started and employee stockholdings were relatively as
large, if not larger, than in the United States, 503,400 stockholders,
many of them employees, owned stock in eighteen corporations; in
one chemical concern, employees owned 643,000 shares, 5% of the
total." Owen D. Young, chairman of the Board of the General Elec-
tric Company, an affiliate of the House of Morgan, said this of em-
ployee stock ownership: "Labor will be the employer and capital will
be the commodity." ^^ But not only were employee stockholdings very
limited, they were concentrated in managerial and supervisory em-
ployees and a small upper layer of highly s\illed workers.

Employee stock ownership was limited, both in value and in scope.
In 1928, 1,000,000 employees owned not much more than fi,ooo mil-
lion in stock, or 1.6% of all stock owned by individuals. Not more than
400 out of 450,000 active corporations promoted employee ownership,
which was most general in the larger, monopolist combinations.
Nearly one-half of all employee stockholdings were in twenty-four
corporations; the amount was $426 milUon, or 5% of the total stock.
In thirteen of the largest corporations, employee ownership averaged
only 4%. While in some companies fairly large numbers of employees
owned stock, that was exceptional; the average of participants was
below 15% of the total number of employees.Not only was participation
concentrated in a small group of employees; concentration of owner-
ship existed within the employee stockholders, one-third of whom
owned one-half of all employee stock.^^ Nor was there any develop-
ment toward employee control. Employee stock ownership plans usu-
ally make no provision for employee stockholder representation; in a
few corporations, meetings of employee stockholders were held and
they elected a member of the board of directors, but this was extremely
rare. And employee stockholders, a small minority, have even less say

^■■1 PBRCENTA(^£ OF STOCK OWNf/i^lP
»iiiiii|iii| J>£RC£ArrAGE OF GAINFULLY OCCUP/FD

XIV. CLASS DISTRIBUTION OF STOCK OWNERSHIP— 1928.

332 The Decline of American Capitalism

in corporate affairs than the majority absentee stockholders; control is
vested in the officers and their masters, the financial oligarchy.

Small as employee stock ownership was, it was still smaller in terms
of working class participation. Employees comprise all individuals
working for a corporation other than officers and directors. Stock
ownership was concentrated among the non-worker employees — the
managerial, supervisory, and selling staffs. This is confirmed by the
National Industrial Conference Board: "It is clear that corporate stock
ownership by employees up to the present has been, for the most part,
an ownership by the superior employees." ^^ General Motors, with
few stockholders among the mass of its employees, organized in 1923
a Managers Securities Company, whose shareholders were exclusively
the higher employees; the company's ownership of stock,, on which
General Motors paid "bonus" dividends, created 100 millionaires.^*
Such plans, according to the Journal of Commerce, "hold out the pos-
sibility of arousing cooperative efforts in a way that may, under favor-
able conditions, be superior to any other." ^^ Thus, from its most
important angle, employee stock ownership is a means of making
management "more loyal" by enlarging its stake in a particular corpora-
tion; it is also, by the same token, a means of domination over labor.

Where employee stock ownership includes workers, it is an aspect of
the struggle against labor, waged by management and its financial
overlords. In general, the corporations with employee ownership plans
are the ones most bitterly opposed to trade unions (United States
Steel, Standard Oil, General Motors, Goodyear Tire and Rubber);
where unions do exist, as in the case of the Pennsylvania Railroad,
management wages an open or surreptitious war against unionism.
Employee stock ownership is interlocked with company unions, spy
systems, and "welfare" schemes, all aimed to prevent unionism and
independent action by the workers. This purpose was clearly evident
in the earliest exponents of the movement. An American economist,
Nicholas Paine Gilman, said in j88g: "When this privilege [stock
ownership] is accorded by a prosperous firm, the workmen generally
show themselves eager to become capitalists on a small scale, and they
indulge thereafter in very little denunciation of the class which they
have entered." (Gilman claimed that employee ownership "tends to
make the establishment a purely cooperative one in time." ^® Where,
forty-five years later, are these "cooperative establishments"?) And the
same idea of "moderating" labor discontent was expressed, in 1926, in
the theory that employee stock ownership develops, against the inde-
pendence and insurgency of unionism, a group of workers who arc

The Multiplication of Stockholders 333

"better satisfied, more efficient and dependable; are not primarily
reformers, belong to the non-insurgent type, have no essential quarrel
with corporations and employers as such, nor with the industrial system
as such." ''

The upsurge of labor militancy in the strikes of 1877 led the employ-
ers to consider the problem of "harmony" between labor and capital.
It aroused new interest in profit-sharing, and it gave birth to the idea
of employee stock ownership. The idea was thus formulated, in 1878,
by Abram S. Hewitt,* millionaire iron and steel capitalist, who became
a director of the United States Steel Corporation upon its formation
in 1901:

"The harmony of capital and labor will be brought about by joint
ownership in the instruments of production, and what are called
'trusts' merely afford the machinery by which such ownership can be
distributed among the workmen. ... By abstinence, which is the
parent of capital, the workmen can acquire sufficient wealth so that
in a generation the whole capital invested in industrial undertakings
might be transferred to the wage-earning class." ^®

In a generation! . . .

Harmony between labor and capital was also the purpose of profit-
sharing. But it was an expression of small-scale industry, where larger
output could be secured by stimulating the interest of the individual
worker: the "father" of profit-sharing was a French employer of
painters, of craftsmen. Where larger output depends primarily upon
the machine and not the worker, the scope of profit-sharing is Hmited.
This was recognized, in 1889, by Gilman, himself an advocate of
profit-sharing:

"A matter of first importance, however, is the nature of the occupa-
tion in which the system of profit-sharing is applied. Theory and experi-
ence harmonize here in declaring that if the employee is to create an
extra fund of profits, which shall at least provide his bonus, the busi-
ness must be such that increased industry, skill, care, or economy will
tell upon the result. . . . The manufacture of cotton and woollen
goods will occur as being a comparatively unpromising field for this

• Hewitt, who might be called the "father" of employee stock ownership, and
who influenced its adoption (along with other "welfare" practices) by the United
States Steel Corporation, encouraged the crushing of the steel Workers' strike in 1901,
and urged "stern repression" of the coal miners' strike in 1902. He was an enthusiastic
exponent of philanthropy, to which he gave a conscious class purpose. "The rich," said
Hewitt, "in contributing are but building for their own protection. If they neglect
so to build, barbarism, anarchy, and plunder will be the inevitable result." See New
York Times, November 26, 1900; August 26, 1902.

334 The Decline of American Capitalism

new system. The value of the plant is great, the working capital is
large, machinery plays the chief part, and much of the labor employed
is unskilled, save in a very narrow line. The market is variable, and the
balance sheet is determined more by the skill of the management than
by the quality of the manual labor employed." ^®

Hence many employers in England and the United States adopted
the plan of paying "shared" profits in company stock. Eventually
profit-sharing was abandoned in favor of selling stock to employees.
It was both more effective and cost little. Employee ownership is in-
tended primarily for the managerial and supervisory personnel, where
profit-sharing was primarily for workers. But there is still the problem
of making workers more "efficient," "dependable," and "loyal." While
the tempo of efficiency for the mass of workers is set by the machinery
and apparatus in use, the "key" workers must be considered. More-
over, excessive labor turnover is bad for efficiency, while strikes are
fatal to the yield of profits on the masses of capital in modern indus-
try. Capitalist industry resorts to employee stock ownership for the
"key" workers and "welfare" for the mass of workers.

Stock ownership for "key" workers is involved with a neglected
aspect of scientific management: the insistence of Taylorism, not
wholly a matter of "time and motion," that a definite proportion of
workers must be put "on the side of management." In Taylor's own
words: "The work which under the old type of management practi-
cally all was done by the workmen, under the new is divided into two
great divisions, and one of these divisions is deliberately handed over
to those on management's side. ... A machine shop, which, for
instance, is doing an intricate business, will have one man on manage-
ment's side to every three workmen." ^° From a slightly different
angle, the same idea was urged by another efficiency engineer, H. L.
Gantt: "The [theory] is coming to be discredited that in order to get
low costs the expense of the supervising force must be small com-
pared to that of those who are actually performing the physical labor.
. . . The increasing productivity of our automatic machinery requires
Httle direct labor, but quite a good deal of supervision." ^^ Industry's
supervisory employees were greatly augmented. While wage-workers
in manufactures, transportation, and mining rose from 9,982,000 in
1910 to 12,757,000 in 1920, supervisory employees rose much more,
from 495,169 to 823,513.^^ This change in the organization of labor
was accelerated, after 1920, by more intensive automatization and
rationalization. Supervisory employees, including "key" workers, are

The Multiplication of Stockholders 335

represented among employee stockholders. So, also, is a small group
of the older and better-paid workers.

For the mass of workers there is the cruder "welfare" work, com-
pany unions, and other measures, which involve a brutal mixture of
calculated benevolence, espionage, and terrorism to prevent unionism
and strikes, to maintain "loyalty." (According to one estimate, the
costs, in 1927, of the welfare work of 514 corporations was only 1%
of the payrolls.^^ The costs of strikes are infinitely greater.) Thus
capitalism attempts to strengthen its dictatorship over labor. For wel-
fare work is itself a form of struggle against the workers. . . .

The functional distribution of stock ownership is in line, of course,
with the exploiting relations of capitahst production. It was roughly
as follows in 1929:

Absentee stockholders, 87%.

Officers and directors, 11.5%.*

Managerial and merchandising employees and employees "on the
side of management" (supervisory employees, "key" workers), i%.t

Mass of workers, 0.5%.

The "new" Hberals, Hke the old, insist on stressing the "constructive"
aspects of capitalist development, not their class significance, contradic-
tions, and antagonisms. Clearly large-scale industry, the multiplication
of stockholders, and the separation of ownership and management
arise out *of the constructive, objective socialization of production.
This, the historical function of capitaHsm, is the basis of socialism.
But the socialization of production, itself a negation of private prop-
erty and the capitalist relations of production, means both the possi-
bility of new progress and a reaction against progress. For, while the
older social-economic relations persist, it means more exploitation of
labor (and the farmers), monopoly capitalism, imperiaUsm, economic
decline, mass disemployment, and war. But these conditions the "new"
liberals overlook, or else consider them "independent" categories, not
understanding the dialectical unity of capitalist development. So
they stress the "constructive" aspect of the separation of ownership and
management: the appearance of an "independent" class of manage-
ment. This class is to introduce a "new spirit" in industry, compact
of devotion to the interests of employees and consumers, disregarding

* The Federal Trade Commission estimated in 1922 that officers and directors owned
10.7% of the common stock and 5.8% of the preferred in the corporations employing
them. Federal Trade Commission, National Wealth and Income, p. 159.

fThe total ownership of stock by higher employees, officers, and directors is, of
course, much greater, for they may own stock in other corporations. But that is an
absentee, not an employee ownership.

33^ The Decline of American Capitalism

the rights of property and stockholders. The idea has thus been formu-
lated by Prof. Sumner H. Slichter, a "new" liberal and an institutional
economist, who is entangled in all the contradictions of the "older"
and the "newer" economics:

"The voice of property owners in the control of industry seems to
be diminishing . . . through the growth of state intervention, of
trade unionism, and, probably most important of all, of professional
management which is more or less independent of control by inves-
tors. . . . Mere private ownership of capital ... is not capitalism.
Capitalism is the control of policies by private property owners. . . .
To the tendency of management to become independent of ownership
there is no check in sight. It may be objected that the shift in power
from owners to managers represents no real change in the control of
industry, that professional managers are guided essentially by the same
pecuniary standards which business owners accept. This, however, is
true in part only, because professional management develops standards
of its own to which it tends to adhere even in violation of investors.
By influencing these professional standards, the public has an excellent
opportunity to affect the conduct of industry." ^*

This is simple, all too simple.

State intervention is in the interest of the capitalist class. It ends in
fascism, a reaction against all progressive forces.

Trade unionism, unless it moves toward larger revolutionary objec-
tives, is increasingly subordinated by state capitalism and finally sup-
pressed by fascism.

These two forces do not move "smoothly" toward a "new" social
order. They move, in the epoch of capitalist decline, toward an explo-
sion of class-economic contradictions and antagonisms: revolution or
reaction.

The merely functional, not class, analysis of management is insuffi-
cient. From the functional angle, "professional management" is a
progressive development, an expression of the socialization of produc-
tion, one of the elements of socialism. From the class angle, profes-
sional management is thwarted to serve property interests; it is a
hireling of the financial oligarchy. Slichter himself says: "They [profes-
sional managers] are not free men. They are not neutral, hired to
serve all interests alike. They are employed by stockholders to promote
the interests of stockholders." But still: "They must be neutrals —
equally the servants of the owners of capital, wage-earners, and con-
sumers."^^ The eternal simplicity of the "new" liberals! Always they
indulge in wish-fulfillments, to evade the need of struggle. Higher

The Multiplication of Stockholders 337

wages, social legislation, protection of the consumer, employee stock
ownership, all the older reforms, and the newer: they are still urged,
while capitalist decline and reaction prepare to annihilate all reform.

For the separation of ownership and management does not mean
that capitalism is "not capitalism" any more, in the sense of any basic
change in class relations. It simply separates the functions of exploi-
tation and management, formerly combined in the lordly person of
the capitalist himself, now become an absentee or financial capitalist.
Feudalism was still feudalism when the nobility became a class of
absentee landlords and courtiers, while management was made a func-
tion of underlings. Feudalism was not transformed by the "professional
spirit" and "independent standards" of the nobility's managerial em-
ployees; it was undermined by social-economic development and over-
thrown by the revolutionary class struggle of the bourgeoisie.

A ruling class, when it comes to power, combines constructive and
exploiting functions. The bourgeoisie was not merely an exploiter of
the workers. It performed the historical task of overthrowing feudal-
ism, and it organized a new, more progressive mode of production.
The early industrial capitalist combined the functions of ownership
and management, of exploitation and labor. Now, however, the indus-
trial capitalist is an anachronism, and nowhere more so than in the
United States, where large-scale industry and the multiplication of
stockholders are most highly developed. Stockholders own,, but they
do not manage. Management does not own, but it manages as
employees. The financial capitalists are merely exploiters; they con-
trol, and have a monopoly share in ownership, but they perform no
useful social function. Thus ownership becomes more wholly para-
sitic, control more wholly predatory. A new social order thunders at
the gates of history.

Neither management nor stockholders control industry; control is
usurped by the financial oligarchy and its institutional mechanism, the
great banks. Of whom is management composed? It is under control
of the higher administrative officers and directors, many of them
major or minor financial capitalists, most of them plundering their
corporations, and all of them dependent upon the financial oligarchy.
Upon them the real management, the lower officers and managerial
and supervisory employees, is dependent. This dependence, moreover,
is not only objective; for the ideology and practices of management
are still dominated by the social relations of capitalist production.
Nor is management independent of the stockholders; its most impor-
tant elements are themselves stockholders. From a functional angle.

338 The Decline of American Capitalism

except in so far as its work is simply to increase profits by exploita-
tion both of the workers and of commercial opportunities, professional
management is a step toward socialism; it develops the arts and some
of the relations of the sociaUst economic order. From a class angle,
management is to-day partly a privileged caste, beneficiaries in varying
measure of the subjection and exploitation of the workers. (The lower
layers are, however, increasingly exploited, particularly under the con-
ditions of capitalist decline; they are possible allies of the workers.)
It is management which uses all means in its power — company unions,
espionage, blacklists, "yellow dog" contracts, violence — to suppress the
workers; management, not its financial masters, is on the firing line
in the minor civil wars of strikes.

The significance of hired managers is not a discovery of the "new"
liberals. It was observed by the bourgeois economist, Ure, in the 1830's.
On this subject, Marx wrote:

"The labor of superintendence and management will naturally be
required whenever the direct process of production assumes the form
of a combined social process, and does not rest on the isolated labor
of independent producers. It has, however, a double nature. On the
one side, all labors, in which many individuals cooperate, necessarily
require for the connection and unity of the process one commanding
will, and this performs a function, which does not refer to fragmentary
operations, but to the combined labor of the workshop, in the same
way as does that of a director of an orchestra. This is a kind of pro-
ductive labor, which must be performed in every mode of production
requiring a combination of labors. On the other side, quite apart from
any commercial department, this labor of superintendence necessarily
arises in all modes of production which are based on the antagonism
between the worker as a direct producer and the owner of the means
of production. To the extent that this antagonism becomes pronounced,
the role played by superintendence increases in importance. Hence it
reaches its maximum in the slave system. But it is indispensable also
under the capitalist mode of production, since the process of production
is at the same time the process by which the capitalist consumes the
labor power of the laborer. In like manner, the labor of superintend-
ence and universal interference by the government in despotic states
comprises both the performance of the common operations arising
from the nature of all communities, and the specific function arising
from the antagonism between the government and the mass of the
people. . . . The labor of superintendence and management arising
out of the antagonistic character and rule of capital over labor, which

The Multiplication of Stockholders 339

all modes of production based on class antagonisms have in common
with the capitalist mode, is directly and inseparably connected, also
under the capitalist system, with those productive functions which all
combined social labor assigns to individuals as their special tasks. The
wages of an epitropos, or regisseur, as he used to be called in feudal
France, are entirely differentiated from the profit and assume the
form of wages for skilled labor. . . . That not the industrial capitalist
but the industrial managers are 'the soul of our industrial system/
has already been remarked by Ure. ... To the extent that the labor
of the capitalist is not the purely capitalist one arising from the process
of production and ceasing with capital itself, that it is not limited to
the function of exploiting the labor of others, that it rather arises from
the social form of the labor process as a combination and cooperation
of many for the purpose of bringing about a common result, to that
extent it is just as independent of capital as that form itself, as soon
as it has burst its capitalist shell. . . . Compared to the money [finan-
cial] capitalist the industrial capitalist is a worker, but a working
capitalist, an exploiter of the labor of others. . . . The wages of super-
intendence appear completely separated from the profits of enterprise
in the cooperative workshops as well as in capitalist stock companies.
. . . Stock companies in general have a tendency to separate this labor
of management as a function more and more from the ownership of
capital. Only the functionary remains and the capitalist disappears from
the process of production as a superfluous person." ^^

Once the capitaHst combined the functions of exploitation and
management; in his typical modern form, he merely exploits. But
management still performs both the function of managing and exploit-
ing. They can be separated, however, as they were separated in the
person of the capitalist. Where, however, economic development was
enough in the one case, in the other a revolutionary social transforma-
tion is necessary. In the Soviet Union the capitalist was annihilated
and management was deprived of its exploiting aspects. Management
is now wholly a junctional task, merely a form of productive social
labor. . . .

The multiplication of stockholders, and the separation of ownership,
management, and control, are identified with increasing economic
instability and the decline of capitalism. Concentration of the owner-
ship of stock, of wealth and income, provides the sinews of specula-
tion. Because of control by the financial oligarchy, corporate industry
becomes increasingly irresponsible, adventurous, speculative, and
unstable. Capitalism is no longer capitalism in the old sense, it is

340 The Decline of American Capitalism

rotten-ripe for change; but capitalist relations persist, thwart and resist
social change, react against progress, and produce economic decline,
new maladjustments and disturbances.* Yet these sinister conditions
arise out of essentially progressive developments capable of becoming
the basis of a new social order, in which man, the worker, masters
society, nature, and himself.

•Depression wipes out most of the holdings of small stockholders. Where they
arc trying to get a job or slightly raise their wages, with the lower living standards and
mass disemployment of capitalist decline, workers are not likely to aspire to become
stockholders. Hence the ballyhoo of state capitalism does not include the idea of
realizing "industrial democracy" by making the workers stockholders and capitalists!

CHAPTER XIX

Class Distribution of Wealth

In! iraism claims that its program means the redistribution and "more
democratic" ownership of wealth. That is also the claim of state capi-
talism in Europe, and of fascism. Meanwhile the concentration of
wealth is being augmented; only poverty and misery become "more
democratic," more universal and inescapable.

Similar claims were made, before the World War, by American
liberals, who for forty years fought for the taxation of incomes and
inheritances to break up the concentration of wealth. They were
damned by the embattled owners of great fortunes and their apologists
as immoral wretches, anarchist enemies of God and country, a menace
to democracy and the republic. For the simple proposal to tax incomes
and inheritances! Finally, in 1913 and 1916, the proposals were enacted
into Federal law. But the concentration of wealth, and of income, was
not broken; it was strengthened.

That the concentration of wealth was at least unshaken during the
war and the early post-war years, was proved by the Federal Trade
Commission's study of the distribution of comparable samples of
estates in 1912 and 1923. Curiously, however, the Commission, and
the ballyhoo men who seized upon its conclusion, used its figures to
"prove" the existence of a tendency toward more equal ownership of
wealth. Yet even the Commission did not claim much of a change,
merely "an apparent trend toward a somewhat wider distribution."
Merely that, in spite of income and inheritance taxes, of heavy war
taxation of corporate profits and the higher incomes, of many economic
and political changes. But the conclusion itself was unjustified. "In
1912," according to the Commission's report, "about 29% of all the
probated estates amounted to less than $1,000 each, while in 1923 only
20.8% were less than $1,000. Furthermore, in 1912, the estates of over
$100,000 each amounted to 52.6% of the total value of all estates, while
in 1923, they amounted to only 45.9% of the total." ^ These figures
prove the opposite of the Commission's conclusion. In 1923, the pur-
chasing power of money was 45% lower than in 1912; this would
nominally raise the value of estates, and the number of small estates
would tend to decrease. That is no indication of a more widespread

342 The Decline of American Capitalism

distribution of wealth. And the fall in the value of larger estates
merely meant that, to evade inheritance taxes, many fortunes were
partly distributed before the death of their owners.

What the Commission did prove, and prove fully, was the existing
great inequality of wealth. By including decedents, the overwhelming
majority of workers and poorer farmers, who left estates so small that
they were not probated (76.5% of all decedents), and assigning these
"estates" an estimated average value of $258, just enough to bury the
owners, the Commission found that:

Estates below $500, 79.8% of the total, owned 5.6% of the wealth.

Estates of $500 to $10,000, 14.9% of the total, owned 12.7% of the
wealth.

Estates of $10,000 to $50,000, 4.2% of the total, owned 23% of the
wealth.

Estates of $50,000 up, 1.1% of the total, owned 58.9% of the wealth.^

The "new capitalism" flourishing in 1923-29 also claimed that
wealth was being redistributed in favor of the masses. It made no
mention of income and inheritance taxes as a means of breaking up
the concentration of wealth. It insisted that this was being done by
increasingly higher wages and the more equal distribution of income.
The claim was refuted by the facts of stationary wages and increasing
income inequality. It was also refuted by the upward movement in
the value of the larger estates.* Although the number of probated
estates fell from 13,011 in 1923 to 8,798 in 1929, their value rose from
$2,540 million to $4,108 million, a much greater rise than in produc-
tion, the national income, and national wealth. Estates of $50,000 up
rose from 6,344 ^^^ ^^^i^ value from $1,857 ^^ S3j749 million, an in-
crease of 100% compared with 60% in the value of all probated
estates.^ This substantial upward movement in the concentration of
wealth was the natural result of an accelerated accumulation of capi-
tal, the amassing of industrial and speculative profits, and the multi-
plication of capital claims. New fortunes were piled up, and the older
fortunes grew tremendously.

One aspect of the "new capitalism" was the theory of "trade union
capitalism." t Its assumption was this: if the workers mobilize their
"enormous" savings, and invest them in corporate stocks and labor

•According to Robert R. Doane, The Measurement of American Wealth (1933),
p. 33, the share of the national wealth owned by incomes of $10,000 up rose from
38.7% in 1 92 1 to 42.6% in 1929; the share of all incomes below $3,000 fell from
31.9% to 29%, and of incomes of $3,000 to $10,0000 from 29.4% to 28.4%.

t This subject is discussed more fully in Chapter XXVI, "The American Revolution."

Class Distribution of Wealth 343

banks, the working class will eventually get control of industry.
Workers will become capitalists, and the antagonism between labor
and capital will be ended. "Even a barber, if he owns his razor," said
Warren S. Stone, Chief of the Brotherhood of Locomotive Engineers,
an enthusiastic advocate of "trade union capitalism" and one o£ the
original labor bankers, "is a capitalist; most workingmen own stocks
and bonds." * But only a small group of workers were able to buy
stocks. Depression has now expropriated most of them. The labor
banks are now a mass of ruins. And the "enormous" savings existed
only in the imagination of the apologists. "Each year," said one labor
banker, "our industrial workers save from $6,000 million to $7,000
million in various ways." ^ This conclusion was reached in a simple
(very simple) fashion: one estimate of the national savings was $12,-
000 million; the workers are more than half the gainfully occupied, so
they save that proportion of the national savings!

Workers slightly augmented their absolute share of savings, but not
their relative share. Total savings deposits rose from $6,835 million in
1910 to $28,218 million in 1929. Over half the increase, however, was
an accumulation of interest, totaling $11,588 million.^ Another part was
a nominal increase, because of the fall in the purchasing power of
money. Yet the rise was substantial.* But the savings were primarily
those of the bourgeoisie, not the workers. While deposits in mutual
savings banks, where workers are most likely to have accounts, rose
165% from 1910 to 1929, they rose 328% for all banks.^ In the non-
mutual banks savings are not really savings, they are mainly the
"time" deposits of businessmen; where they are savings, they are
overwhelmingly those of the middle class, especially the upper layers.
Nor are wage- workers the majority of depositors in mutual savings
banks; less than a third in one Philadelphia bank were workers. An-
other investigation revealed that, among a group of women workers,
only one-half had savings accounts; half of them were under $100 and
only seven over $500.® The ownership of deposits is highly concen-
trated. In the savings banks and the savings departments of state
banks and trust companies of Connecticut, in 1929, the distribution
of deposits was as follows:

♦ New savings, interest, and insurance, in line with the tendency of capital and
capital claims, increased much more than production and the national income, and
more in 1919-29 than in preceding periods. Thus savings do their bit to intensify
maladjustments and disproportions. And this is true also of those savings which are
"rainy-day" funds. Only when the provision for illness, old age, and disability is
sociaUzed, in a socialist society, will it stop being a disturbing factor, for then it is
done according to plan and the balanced needs of industry.

344 The Decline of American Capitalism

The smaller accounts, 1,152,311 or 84.3% of the total, had deposits
of I167 million, an average of $145.

The intermediate accounts, 209,608 or 15.3% of the total, had deposits
of $534 million, an average of $2,550.

The larger accounts, 5,555 or 0.4% of the total, had deposits of $79,-
000,000, an average of $14,315.®

Most workers with savings were included in the smaller accounts,
with an average deposit of $145! And in 1933, of 30,556,105 accounts
in Federal Reserve banks, with total deposits of $23,542 million, 96.5%
of the accounts had 23.7% of the deposits, with an average of $189,
while 0.1% of the accounts had 44.6% of the deposits, with an average
of $224,000.^'' Use one or the other set of statistics, and the conclusion
is the same: the share in savings of the working class was miserably
small. It is smaller now, much smaller, because of losses during
the depression and mass unemployment.

The share of the workers was larger, in 1929, in the $8,695 million
assets of building and loan associations, with their 12,111,209 members.^^
But it was far from a majority share, for most of the members are of
the lower middle class. (Never, in any previous depression, were there
as many foreclosures of small home-owners as in 1930-34, including
workers and professionals.)

Nor did the workers have any "enormous" share in life insurance.
That is also highly concentrated. In 1932, 402 individuals (thirty-five
more than in 1930) owned policies of over $1,000,000, totaling $640
million.^^ Average insurance for all policyholders was $3,000. For
policyholders with incomes from $1,000 to $2,000 the average was only
$1,023, ^^^ $2,798 for those with incomes from $2,000 to $3,000.^^ But
the average policy of the workers was even smaller. According to one
estimate, a working class family in 1924 was able to spend an average
of only $43 on insurance.^* The workers' real stake is in industrial
insurance, although a part of it is carried by non- workers. In 1929,
industrial policyholders held insurance of $17,902 million, or 17.4%
of total life insurance; the value of the average holding was only
$360.^^ Workers lose more than they gain, moreover, from industrial
insurance. Costs are great. Lapses still greater: they rose from 6% in
1921 to 23% in 1932. In 1929, for every dollar of insurance sold, 67.1%
had vanished. For 1928-32 alone, the losses on lapsed policies were
$200 million. There is much more profit for the insurance company
in 1,000 industrial policies, of which 500 lapse, than in 500 policies,
of which only 200 lapse.^® Life insurance is identified, not only with
the unequal distribution of wealth and income, but with all the preda-

Class Distribution of Wealth 345

tory aspects of capitalism. The companies are plundered by manage-
ment, whose upper layers get fabulous salaries; they spent $921 mil-
lion in 1929, while the policyholders received $1,961 million: 32^ costs
for every 68^ distributed! ^^ And, in spite of their mutual character,
they are under the control of the financial oligarchy, which manipu-
lates their resources for investment, speculative, and other profitable
purposes. . . .

The average workers' family, according to one estimate for 1924,
saved $122 yearly; 24% of the families had an average deficit of $127.^^

TABLE V

n in National Savings, 1^28

TOTAL

LABOR

SAVINGS

SHARE

(Millions)

(Millions)

$2,322

$ 500

2,296

850

860

300

5^346

50

2,035

•

1.325

#

6,628

100

1,500

«

8,000

•

TYPE OF SAVING

Savings Deposits

Life Insurance Premiums

Building and Loan

Corporate Issues

Government Issues

Foreign Issues

Construction

Agriculture

Business Savings

Total (Net) $18,000 $1,800

* None.

Source and methods of computation: All of the labor shares are wholly estimated,
except insurance premiums; to $700 million paid in industrial premiums (Maurice
Taylor, The Social Cost of Industrial Insurance, p. 193) is added a probable $150
million for ordinary life premiums. Business savings are additions to corporate sur-
plus and undivided profits of $6,600 million (Bureau of Internal Revenue, Statistics
of Income, 1931, p. 48), and an estimate of $1,400 million as the savings of non-
corporate enterprises. The amounts of the different savings are from Department of
Commerce, Statistical Abstract of the United States, 1931, pp. 280, 318, 876.

Small as the workers' share of the national income is, their share of
the national savings is still smaller. This share, in 1928, was only 10%
(Table V). It is necessarily small, because all the class-economic rela-
tions of capitalism make "saving" a monopoly of the owning and
possessing class.*

* The workers' small share in savings and insurance disposes of the argument that
they have a large indirect interest in corporate ownership. Moreover, the banks and insur-
ance companies own not much over 5% of total corporate stock.

346 The Decline of American Capitalism

Wealth changes its forms, as social-economic relations change, but
not its main characteristic: it is a claim upon production and income.
Concentration in a class of the ownership of the means of production,
upon which depends the livelihood of society, means a class monopoly
of wealth. In one aspect, as tangible things, wealth represents the
product of social labor, the means of satisfying society's needs; in
another aspect, as ownership, it represents an appropriation of the
means of labor and of the product of labor, the power of exploiting
the producers. New increments of wealth result from the combined
labor of society; under the relations of private property the increments
become the possession of a class.

Where wealth is capital it is, as a social relation of exploitation, the
"right" to appropriate surplus value, the unpaid labor of workers, and
convert it into capital as new means for appropriating more surplus
value. That is why capitalist production depends upon continual
expansion, upon an increasing output and absorption of capital goods.
Great fortunes are typical of capitalist wealth. They are not, however,
the result of mere direct appropriation of surplus value; fortunes may
be acquired and enlarged by theft of natural resources, by speculation
and political corruption, by plunder of the wealth, or realized surplus
value, of other owners of property, by mere flukes of chance. But
all great fortunes are claims upon production and income, upon the
unpaid labor of the workers.

Not the "abstinence" or savings of the individual, but the "savings"
of society are the source of new capital. Even where savings are the
result of abstinence or thrift, they become capital only by commanding
and exploiting labor. Individual abstinence plays a very small role in
capital accumulation; an impersonal, institutional abstinence, imposed
upon the masses by the social relations of capitalist production, is the
source of capital. This appears clearly in the three forms of savings:

1. Where savings represent individual abstinence from consumption,
they are the least important source of investment capital. It is limited
to the savings of the workers, the mass of farmers, and the lower
bourgeoisie (who, however, may also appropriate surplus value).
This real abstinence produces not more than 15% of the national
savings. The savings, moreover, become capital only when they are
invested, mainly in the form, of the institutional investments of banks
and insurance companies, and yield realized surplus value in the
form of interest or profit.

2. The major source of "savings" is the surplus income of the inter-
mediate and upper bourgeoisie. It is this surplus the apologetic econo-

Class Distribution of Wealth 347

mists justify with the theory that "abstinence is the source of capital."
But the capitalists are not abstemious. They enjoy all the good things
of life. Their great expenditures, especially on conspicuous competitive
consumption, are the direct opposite of abstinence. The surplus, and
the consumed part of capitalist income, was originally unpaid labor
or product of the workers; it becomes income-yielding and wealth-
yielding capital by extorting more unpaid labor. (Speculative profits
are either realized surplus value or claims upon prospective surplus
value.) In one sense, the surplus income of the bourgeoisie is the
product of abstinence, of the abstinence from fuller participation in the
fruits of their labor, and from consumption, of the masses of workers
and poorer farmers,*

3. On the average, from 40% to 50% of the national savings are the
result of business savings, of undistributed profits. Personal abstinence
does not contribute to these enormous savings, neither the self-imposed
abstinence of the worker, who saves a little for the rainy day, nor the
imaginary abstinence of the capitalist. The small businessman who
saves a part of his profits performs, it is true, a personal act. But this
is of diminishing importance in capitalist production, which becomes
increasingly large-scale and corporate; non-corporate enterprises in
1928 contributed not much more than 15% of total business savings.
Corporate surplus and undivided profits, in 1927-29, rose $21,300 mil-
lion, an average of $7,000 million yearly.^^ These are impersonal,
institutional savings, independent of individual initiative, a social form
of accumulation within the relations of personal property ownership.
In the measure that corporate savings are reinvested and yield profits,
they augment the income and wealth of stockholders who, in this
particular case, have done absolutely nothing, not even to invest.

This impersonal and institutional, or social, character of capital
accumulation appears most strikingly in credit. When the management
of a corporation gets a bank loan, or when its securities are under-
written and, while still unsold, are used by the investment banker to
get credit from a commercial bank, the credit represents only in very

* "The capitalist does not become enriched as does the miser in proportion to
his personal labor and his personal abstinence from consumption, but to the extent to
which he can put the screw on other's labor power, and to which he can enforce
upon the worker the renunciation of all the pleasures of life. Although, therefore,
the capitalist's extravagance never has the genuine character of unbridled prodigality
which was typical of certain feudal magnates, and although behind it there lurk sordid
avarice and anxious calculation, none the less his prodigality grows proportionately with
his accumulation, without the one necessarily putting an end to the other." Karl
Marx, Capital, v. I, p. 635.

348 The Decline of American Capitalism

small part money saved and deposited in the bank. For banks issue
credit beyond their actual resources. Loans become deposits, and these
deposits become the basis of more loans. Where formerly bank credit
was used largely for commercial and working capital purposes, it is
now used largely for fixed capital purposes. According to the estimate
of one economist, over 50% of commercial bank credit is used for fixed
capital.^^ And the greater part of credit is merely an institutional crea-
tion, repayable because of the profits it makes by command over labor,
capital equipment, and raw materials. Capital created by credit is
obviously the product of social labor. There is neither real nor imagi-
nary abstinence, except the abstinence imposed upon the workers pro-
ducing surplus value. But so is all capital the product of social labor,
although it all becomes private property. In final analysis, the creation
of capital is determined by assigning so much social labor to the pro-
duction of capital goods, an elementary fact disguised and distorted by
the ownership, financial, and predatory relations of capitalist produc-
tion.

Another source of wealth, independent of personal saving or invest-
ment, is the multiplication of capital claims. (Some claims are the
result of non-productive investment.) One form of this is the upward
movement in land values, capitalizing the growth of population,
production, and the national income. Another form is the recapitaliza-
tion of industry and the inflation of stock values. This may result from
speculation, or from capitalizing the general upward movement of
production, technological changes, seizure of natural resources, un-
usually profitable market conditions, formation of monopolist com-
binations, and monopoly advantages.* This, in certain stages, may be
an unusually important source of capitalist wealth; as in 1 898-1 91 4,
when monopoly recapitalized American industry. It was important in
the pre-1929 prosperity: mergers and combinations yielded great profits
to promoters and bankers, and inflated capitalization. Monopolist com-
binations all capitalized increasing production, the rising productivity
of labor, and anticipations of higher profits. An investment, in 1922, of
$10,000 in the common stocks of a group of corporations rose in eight

• "Those millions of new capital resources were not a result of savings and abstinence,
but only capitalization. . . . Technical progress made production cheaper, and this
cheapening of processes did not reduce prices — as was the case in the last thirty
years of the nineteenth century; the gain in the present century has been absorbed in
the process of capitalization. Thus the private capital, which is really only a right to
income without effort, a multiple of a free income, has been increased without the
real and social capital being proportionally augmented by saving." L. V. Birck,
"Theories of Overproduction," Economic Journal, March, 1927, p. 26.

60%

jy%\

SQ%\

4S%\

W0RK1N&
CLASS

FARMERS

fj<HMetKs /^.V%

■■■■I P£:/K£/VrA&£ OF W£ALTH 0WN£O

imiminii PiRdAjrAoeof gajnfullv occup/sd

XV. CLASS DISTRIBUTION OF WEALTH— 1928.

350 The Decline of American Capitalism

years to $23,500, an increase of 235%, in addition to yielding cash
income of $8,535, ^^ average yearly increase of 16.5%.^^ Independent of
new investment, capital and capital claims were augmented, rising
faster than production and the national income, engendering malad-

TABLE VI

Class Distribution of Income-Yielding Wealth, ig28

WEALTH

NUMBER

PER-

OWNEDt

PER-

CLASS

IN CLASS

CENT

(millions)

CENT

AVERAGE

Working Class*

32,500,000

68.5

$13,500

4.7

$415

Farmers

7,400,000

15.6

43.990

15.4

5.950

Bourgeoisie :t

Lower

4,300,000

9.0

34.850

12.2

8,100

Intermediate

2,880,000

6.1

61,420

21.6

21,300

Upper

382,241

0.8

131.240

46.1

343.400

Total

47,462,24]

loo.o $285,000 lOO.O

$6,000

• Wage and clerical.

+ Lower bourgeoisie, incomes below $3,000; intermediate, incomes of $3,000 to
$10,000; upper, incomes of $10,000 up.

X Robert R. Doane, The Measurement of American Wealth, p. 25, estimates the
1929 distribution of all wealth, including non-income yielding, as follows: Incomes
of $10,000 up, $150,691 million or 42.6%; incomes of $3,000 to $10,000,
$100,161 million or 28.4%; all incomes below $3,000, $102,239 million or 29%.
Incomes of $100,000, a handful of 14,816 individuals {Statistics of Income, 1931,
p. 39), owned $46,482 million or 13.2%.

Source and methods of computation: Basic sources are the same as in Table V,
and Department of Agriculture, Crops and Markets, July, 1929, p. 254. Income-
yielding property includes (less duplications) all individually owned corporate stocks
and bonds, mortgages, government bonds, foreign securities, real estate, capital value
of unincorporated business enterprises, farms, savings deposits, and assets of insurance
companies and building and loan associations. Private homes and personal property
are excluded. Estimates of class distribution are as follows: Working class — stocks
$750 million, corporate bonds $250 million, savings deposits $7,000 million, govern-
ment bonds $500 million, share in building and loan assets $2,500 million, share in
life insurance assets $2,500 million. Farmers — stocks $625 million, corporate bonds
$1,750 million, savings deposits $2,000 million, government bonds $2,000 million,
insurance $1,500 million, farms ($58,645 million less $32,530 million value of
rented land and debts to non-operators plus probably $10,000 million for value
of rented land and mortgages owned by farmers) $36,115 million. Upper bour-
geoisie— stocks $48,300 million, corporate bonds $10,000 million, government bonds
$9,940 million, foreign securities $5,000 million, unincorporated business $17,000
million, real estate $26,000 million, savings deposits $10,000 million, insurance $5,000
million. Intermediate and lower bourgeoisie — balance of income-yielding property,
apportioned roughly in accordance with income and stock ownership.

Class Distribution of Wealth 351

justments and disturbances. Many of the gains of recapitalization are
wiped out {not the part represented by the profits of bankers and
promoters). But the losses are a necessary condition of capitalist accu-
mulation, and they help to concentrate wealth in the ownership of
financial capitalists. In the epoch of the upswing of capitaUsm, more-
over, the gains were greater than the losses, enlarging capital claims
like a snowball going downhill. It is different in the epoch of decline,
when losses tend to outstrip gains; this inflames capitalist passions,
makes their fight for profits more ferocious, creates new antagonisms
and social explosions. . . .

As the accumulation of wealth is essentially an impersonal, insti-
tutional function of ownership and class exploitation, the share of the
working class must be small. It is even smaller than the 10% partici-
pation in national savings, because these savings are rainy-day funds,
cut into by illness, unemployment, and depression. (If, in depression,
a worker uses up his savings, the loss is final. But the losses of the
owning class are not necessarily final. If the values of stocks go down,
they rise again; if the stocks are sold, what the former owner loses the
new owner may gain.) Hence, in 1928, the workers' share in the
income-yielding wealth of the nation was only 4.7% (Table VI), half
their share of the national savings. Not only is concentration of wealth
greater than of income, it is greater than the statistics indicate. For
the workers' "wealth" is merely a pitifully small reserve against illness,
unemployment, and death. The farmers' share is probably overesti-
mated, and ownership is concentrated in the upper layers; the tenants,
share croppers, and poorer farmers, the majority, do not even make
a fair living. The share of the lower bourgeoisie is largely bound up
with their occupations, their petty business enterprises. Ownership of
income-yielding wealth, of capital resources, is a monopoly of the
intermediate and upper bourgeoisie, with their 67.7% share massed
in corporate ownership and control of industry. Combined they are
only 6.9% of the gainfully occupied, the upper bourgeoisie only 0.8%.*

* The depression wiped out much wealth and increased the concentration of owner-
ship of the remainder. In 1929, 99% of the people owned only 17% of the nation's
liquid wealth (cash, savings deposits, insurance, stocks and bonds); by 1932 their share
had dwindled to less than 6%. "This is the most rapid, drastic, and gigantic dissipa-
tion, redistribution, and transformation of capital that has, in all probability, ever taken
place in so short a period in any individual economy in the history of modern times.
. . . That it represents nothing more than a picturesque incident in another of our
great 'shifts' of capital is gravely doubtful. It has been far too broad and deep and
penetrating this time to allow of easy escape." Robert R. Doane, The Measurement of
American Wealth (1933), pp. 28-32.

352 The Decline of American Capitalism

In any class society the ownership of wealth is a monopoly of the
ruling class. Its forms change as the mode of production and resulting
class-economic relations change. Landholding, the direct exploitation
of the producer, was the essential form of pre-capitalist wealth. The
commercial revolution in Europe, from the fifteenth to the seventeenth
centuries, thrust forth a new type of wealth, derived from trading,
mining, speculation, and promotion, while landholding became a new
source of wealth by levying tribute upon economic development. Capi-
talist wealth is based upon the production of surplus value by the
workers. Hence it depends upon an increasing output and absorption of
capital goods, of new means for the exploitation of labor. But capitalist
wealth is also a mass of claims upon production. Great fortunes {cf.
ownership of natural resources) may represent simply the "right" to a
share in the social wealth, in the surplus value appropriated by others.
While all capitalist wealth is derived from the exploitation of labor,
fortunes may be amassed by plundering other capitalists of their wealth.
These conditions become the more typical as industrial capitalism is
transformed into monopoly capitalism. The wealth of the financial
oligarchy is merely a mass of paper claims upon production and labor,
upon the surplus value appropriated by active capitalists, or, increas-
ingly, by hired management as agents of ownership.

Changes in the form of capitalist wealth parallel class-economic
changes which express not only the development of capitalist produc-
tion and exploitation, but also the historical drive toward a new social
order.

While in sixteenth-century Europe and after fortunes were piled up
out of trade, promotion, and speculation (including the "primitive
accumulation" of the expropriation of peasants from the soil), accumu-
lation in the North American colonies assumed at first the older form
of large landholdings. Spaniards acquired fortunes by plundering the
Aztec and Inca civilizations, another form of primitive accumulation,
and by forcing the Indians to dig gold and silver. But farther north
there was only land to wrest from the aborigines. The English kings
gave title to vast domains to their favorites, often pauperized aristocrats,
who combined with merchant capitalists to exploit the grants. Along-
side and within the proprietary grants, great landed estates were cre-
ated. In the New Netherlands, the Dutch also built up large landhold-
ings; the 700,000-acre estate of KiUiaen van Rensselaer was not unusual.
These manorial estates were worked with tenants and indentured
laborers, and the owners were for years dominant political powers.
Farther south, the plantation system was based on Negro slavery; the

Class Distribution of Wealth 353

cultivation of tobacco with slave labor in Virginia produced some of the
earliest colonial fortunes. Even after the colonies reverted to the British
crown, the accumulation of large landholdings continued, although
some of the older ones were broken up. Entailing o£ land was exten-
sively practiced. The colonial manorial estates represented the trans-
plantation of an essentially feudal type o£ wealth, but they functioned
in an environment which the commercial revolution was rapidly trans-
forming into a capitalist economy; in fact, the estates depended upon
trade with England for the profitable disposal of their products.

Another source of wealth was overseas trade, an expression of the
world market and developing capitalism. Colonial plunder enriched
European merchants and aristocrats, and provided new means for the
exploitation of labor. Gold from the New World, while it helped to
ruin Spain economically, invigorated the general development of capi-
talism. (The gold was red with the blood of labor; for, in Mexico and
Peru, the working conditions were so terrible that 80% of the Indian
miners died every year.^^) The North American colonies were drawn
into the whirlpool of the world market. By 1680, there were thirty
merchants in Massachusetts each worth between $50,000 and $100,000.^^
The fur trade, supplying the growing luxury demands of the European
aristocracy of blood and money, yielded great wealth, mainly for the
absentee masters of the Hudson's Bay Company in England. The
slave trade, never before organized on such a vast scale, was a fertile
source of colonial fortunes. Money lending and a crude form of bank-
ing developed to meet the needs of commerce, constituting another
source of wealth. By the time of the American Revolution, mercantile
fortunes were disputing supremacy with landholding fortunes, although
land still enjoyed social recognition as a dominant form of wealth.
The father of James Fenimore Cooper owned a manorial estate of
huge proportions; his boast was that there were "some 40,000 souls
holding land directly or indirectly under me." ^*

The Revolution dispersed some fortunes, particularly among the
loyalists whose estates were confiscated as a revolutionary measure;
but others became larger and new ones were created, mainly by finan-
ciering, speculation, and privateering. One revolutionary privateer later
increased his wealth from mercantile and manufacturing enterprises,
accumulating Ji, 800,000.^^ Speculative wealth was' greatly augmented
when the new Federal government assumed $70,000,000 of national
and state debts; most of the bonds were in the hands of a few specu-
lators, who had bought them at 10% to 15% of their face value.^'
Mercantile fortunes, based upon the expansion of trade, agriculture,

354 The Decline of American Capitalism

and industry, grew swiftly after the Revolution, with manufacturing
fortunes becoming increasingly more important. Stephen Girard
amassed a typically capitalist fortune, derived largely from speculative
manipulations in banking, trading, manufacturing, and shipping.

With the onsweep of capitalist enterprise, wealth represented by large
agricultural landholdings definitely receded in importance. The pro-
tests of tenants forced the adoption of legislation to break up the
manorial domains, and the earlier abolition of entail and primogeniture
had a similar effect. As large agricultural landholdings dwindled in the
East, great landed wealth came to consist of urban realty holdings,
whose value was increased enormously with the rapid growth of cities.
Similar fortunes arose in the West — in Chicago, Cincinnati, and St.
Louis. Speculation in the new lands of the frontier began to assume
more importance as a source of great wealth. Land ownership levied its
tribute upon economic development and population growth. Accord-
ing to one estimate, in 1846, of the nineteen New York millionaires
who owned a total of 165,000,000, eight, including John Jacob Astor
and E. van Rensselaer, were landowners and seven were merchants.
But the original wealth of Astor, whose fortune was the largest in its
time, came from the fur trade and the oriental trade, and it was mul-
tiplied by speculation in urban real estate. Of the seventy-eight fortunes
of $500,000 and over, twenty-six were owned by merchants, seventeen
by landowners, five by manufacturers, and seven by bankers and
brokers.^^

The merchant capitalist was now the dominant type. Great wealth
based directly on manufactures was still rare; a contemporary chronicle
said of one rich man that he had "managed, strange to say, to obtain
large profits and wealth" from manufactures. Of nine Boston million-
aires, in 1845, only two were engaged in the manufacture of goods.
But the designation merchant now covered a multitude of interests.
While merchants seldom pioneered manufacturing enterprises, which
were considered risky, they financed the distribution of the products
and secured thereby a large share of the profits. Thus, in 1834, 85% of
the Boston merchants were closely connected with manufactures.^®
Differentiation proceeded steadily, however; many merchants became
industrial capitalists and others abandoned trade for finance. The great
American investment banking houses were originally mercantile firms.
George Peabody gave up trade for international banking and acquired
a fortune of nearly $10,000,000 out of the American need for foreign
capital.^^ The founder of the House of Morgan was a merchant. Bank-
ing was transformed by developing industry's greater need for fixed

Class Distribution of Wealth 355

capital. Merchants and bankers promoted railroads, whose rapid devel-
opment was an important source of economic change and capital
accumulation. The railroads offered an unexcelled opportunity for
piling up profits, both "legitimate" and illegitimate; and Jacob Little,
reputed inventor of short sales, was already demonstrating how a for-
tune might be made by railroad manipulation and speculation. The
characteristic forms of modern wealth began to emerge, based upon the
development of industrial and financial capitalism.

Modern capitalist fortunes appeared much earlier in England, be-
cause of the more rapid tempo of industrial development. Immense
wealth had poured into England from overseas trade and chartered
companies, such as the Africa Company and the East India Company,
most of which combined trade, slaving, and colonial plunder. The
great wealth stolen by English adventurers in India led to the use of
the Indian term nabobs to designate the newly rich. Security specu-
lation, made possible by the rise of joint-stock companies, culminated
in the organization in 171 1 of the South Sea Company, whose pro-
moters were mainly wealthy merchants. When the South Sea bubble
burst, as its predecessor the Mississippi bubble had burst in France,
thousands of people were ruined, but some insiders reaped large
profits. Meanwhile, in the nooks and crannies of the English economy,
forces were accumulating which were to create new riches, to change
the form and increase the size of great fortunes. The industrial revo-
lution not only multiplied wealth but also accentuated its concentra-
tion. Wealth direcdy connected with the industrial revolution, in its
earlier stages, was made by new men; only after the new industries
were successfully established did they prove attractive to the conser-
vative, play-safe owners of older fortunes. But the industrial revolution
also enriched aristocratic landowners whose lands contained coal, iron,
and other minerals, and whose ancestral privileges enabled them to
levy tribute upon economic progress. The earliest of the new capitalist
fortunes arose in the coal and iron industries. Although Henry Cort,
whose processes transformed iron making, died a poor man, the iron-
masters who violated his patents secured great wealth. In the districts
of South Wales, where the new industrialism flourished most vigor-
ously, and where labor and social conditions, according to one au-
thority, combined "the worst features of the industrial revolution," ^°
capitalists in a few years amassed huge wealth from the most merciless
exploitation of labor and the needs of industry. Another crop of rich
men was produced by the textile industry, which ruthlessly expropri-
ated craftsmen and sweated women and children, and also disrupted

356 The Decline of American Capitalism

the village economy of India based on handicraft weaving. Great
w^ealth w^as also acquired by exploiting railroads, especially in the
form of speculation. Investment bankers (Rothschilds, Barings) gar-
nered great profits from promotion, and from the export of capital
for government loans and the financing of railroad construction on
the continent, in the United States, and in Latin America. Never
before had wealth poured forth in such a torrent as in capitalist Eng-
land between 18 15 and 1850, and never were the conditions of the
working class more miserable. At the same time, land fortunes were
still powerful; even after the Reform Bill of 1832, land represented
political power and social prestige. While aristocratic landowners had
their wealth increased beyond the dreams of their ancestors by indus-
trial and urban growth and by corporate investments, industrial and
commercial capitalists bought landed estates in order to quaUfy for
titles and social position: the parvenu spirit of the bourgeois!

Capitalist development on the European continent paralleled Eng-
lish development on a smaller scale. As the financial manipulations of
the Rothschilds spread beyond Germany, they became the most power-
ful factor in the realms of international finance. Their function was
essentially the mobilization for capitalist investment and exploitation
of the wealth of the feudal aristocracy based on pre-capitalist forms of
exploitation. IndustriaUsm and corporate enterprise encouraged pro-
motion and speculation, all forms of the financial plundering of eco-
nomic progress. The Credit Mobilier, which offered competition to
the Rothschilds, paid fabulous dividends in the 1850's, and then
crashed. France under the tragic mountebank, Louis Napoleon, was
the paradise of corrupt and predatory speculators and adventurers
(including the emperor); other fortunes were made by industrial
capitalists in coal, iron, and textiles. All over the continent railroads
were built, enriching their promoters, not the builders. Railroad con-
struction was often beyond immediate economic needs, imposing
new burdens upon the workers and peasants; but promoters raked in
the profits. Holland was no longer the important power it had been
in the sixteenth and seventeenth centuries, but the Dutch merchant
capitalists continued to draw wealth from the exploitation of their
colonial possessions. The rapid industrialization of Germany was the
basis of many great fortunes. Aristocracy in Germany, almost as much
as in England, allied itself with capitalism and enormously increased
its wealth. Thus the feudal landowners of Upper Silesia piled up
great fortunes by the capitalist exploitation of coal, iron, and other
minerals on their estates. In 1913, of the five greatest fortunes in Ger-

Class Distribution of Wealth 357

many, three were owned by landholding aristocrats; in England, the
Duke of Westminster had an income of £200,000, mainly from rents.^^
By 1890, the more industrial nations of Europe — England, Germany,
France, Belgium — were actively engaged in the struggle for imperial-
ist supremacy, which led inexorably to the catastrophe of the World
War. Imperialism, the predatory aspect of the industrialization of the
world's economy, the expression of the developing forces of capitalist
decline, became a most important factor in the accumulation of wealth.
Capitalist industry came increasingly to depend upon the export of
capital and the exploitation of economically backward countries as the
source of cheap raw materials and even cheaper labor. Immense profits
were made in China by financiers, promoters, speculators, and ordi-
nary adventurers. Construction of railroads in Asia, Africa, and Latin
America yielded profits which in many ways suggested tribute levied
upon the conquered.* Loans were knowingly made to the corrupt
governments of economically backward peoples, and wasted; interest
and principal were repaid by the blood and agony of the workers and
peasants. A cabal of Belgian aristocrats, financiers, and speculators,
led by King Leopold, drew immeasurable wealth from the horrible
exploitation of men, women, and children in the Congo, including
"disciplinary" massacres and mutilations. French and Belgian finan-
ciers drew wealth from the construction of the Trans-Siberian and the
Chinese Eastern railroads. (The Soviet Union expropriated these prop-
erties, but the financiers had unloaded the losses onto small investors.)
In Africa the British South Africa Company of Cecil Rhodes ex-
torted profitable concessions from the natives, and inextricably merged
his wealth and business interests with the politics of imperialism. The
basis of empire, said Rhodes, is "philanthropy plus 50%"^^ His im-
perialist schemes led directly to Britain's war with the Boers. An
aspect of imperialism was the augmenting of competitive armaments;
the most brutal, unscrupulous, and predatory capitalists flocked to the
munitions industries, creating and exploiting war scares, some amass-
ing incredibly large fortunes. (American capitalists, on a smaller scale,
did the same thing in Latin America.) Munitions capitaUsts during the

• Conditions were typical in Mexico, where British, French, and American financial
adventurers plundered the Mexican people. Thus the Vera Cruz Railroad, capitalized
at $40,000,000, could have been built for $10,000,000, yet paid dividends of 5% to
12%. Corruption and construction frauds were widespread. One source of extra
profits was unnecessary mileage, using the longest, most crooked routes, to get the
government subsidy. Matias Romero, Railways in Mexico (1882) p. 8. Mexico was
one of the earliest stamping grounds of American imperialism.

358 The Decline of American Capitalism

World War traded with the enemy and provided means to kill "their
own" soldiers — for a profit.

The mounting needs of European industry for overseas raw materials
produced some native fortunes. A landholding family in Chile in-
creased its wealth to $70,000,000 by capitalist exploitation of minerals,
and a Bolivian family amassed over $200,000,000 from ownership of
tin mines.^^ But, by and large, the natural resources of economically
backward countries, and their profits, were seized by foreign capital-
ists. In these countries the older type of landholding fortunes persisted,
although modified by capitalist influence. Personal exploitation of
political power yielded immense wealth to the inner clique of Porfirio
Diaz in Mexico and to Juan Vicente Gomez of Venezuela. The Vene-
zuelan, when he became president in 1908, was a poor man; twenty
years later his private fortune was enormous. The native exploiters of
both countries "made" their money by an alliance with foreign capital-
ists, involving robbery of natural resources and the most brutal sup-
pression of workers and peasants. All this involved some of the most
brutal forms of primitive accumulation.

Great as were the European fortunes created by capitalist develop-
ment, they were smaller than those piled up in the United States after
the Civil War, which strengthened capitalism economically and lib-
erated it politically. Relatively unhampered by older vested interests
and the culture of an older civilization, with an almost "pure" acquisi-
tive ideology justifying unrestricted money-making, American capital-
ism drew upon the apparently inexhaustible natural resources of an
undeveloped continent, exploiting them with the aid of large and
poorly-paid masses of immigrant labor provided by Europe.

The seizure and exploitation of vast natural resources, a form of
primitive accumulation, was of fundamental importance in the forma-
tion of many American fortunes. Most of the natural resources were
originally part of the public domain, which in i860 still consisted of
1,048 million acres. But they came into private capitalist ownership by
"the benevolent paternalism" of a government, according to one bour-
geois historian, which "sold its natural resources for a song, gave them
away, or permitted them to be stolen without a wink or nod. . . . The
public land office of the United States was little more than a center for
the distribution of plunder."^* Not only capitalists became rich by
exploiting natural resources; somnolent farmers acquired wealth over-
night by the discovery of minerals or oils in their lands.

Speculation was a mighty source of wealth in the Civil War, ex-
ploiting the war needs of the government, and connected with polit-

Class Distribution of Wealth 359

ical corruption. The founder of the Armour dynasty made a kiUing
speculating in pork. Jay Cooke built up his fortune financiering in
government bonds. In the period immediately after the Civil War
many fortunes w^ere w^rested from the railroads. Yet the legitimate
construction costs of the great American railroads were more than
paid for by Federal, state, and municipal contributions of $700 million
and grants of 155 million acres of public lands.^^ Cornelius Vanderbilt's
great wealth came almost exclusively from speculating in railroads
and watering their stock as an accompaniment of consolidation; he left
$100 million and one of his sons left $200 million. More than $40,000,000
were extorted from the Union Pacific Railroad in excess construction
costs; the profits were distributed among promoters and politicians.^^
Jay Gould's fortune of $72,000,000 came mainly from railroad manipu-
lation and speculation; it was identified with no constructive achieve-
ment. Many others exploited the railroads in similar fashion. When
speculation, mismanagement, thievery, and unbridled competition
drove the railroads into bankruptcy, wages were cut and workers on
strike brutally suppressed, while thousands of small investors were
ruined; but reorganizations yielded large profits to financiers and pro-
moters. Part of the Morgan money and power came from this source.
Other great fortunes (Hill, Harriman) were piled up by speculation
in railroads and their consolidation into overcapitalized systems from
1895 to 1905. Underlying it all was a mounting production and realiza-
tion of surplus value.

While the older fortunes did as a rule no economic pioneering, para-
sitically satisfied with safe investment and income, the onward sweep
of technology and general economic progress revolutionized one in-
dustry after another; men of small means, who entered the new
industries at an early stage, amassed large fortunes by shrewdly
capitahzing new developments and inventions. (Inventors seldom be-
came wealthy. In Wall Street they said: "It's the third or fourth man
who cleans up on inventions.") The Armours in meat-packing, Cyrus
McCormick in agricultural implements, George Westinghouse in
electrical manufacturing, Andrew Carnegie and Henry Clay Frick
in iron and steel — all levied tribute on technical-economic changes and
tribute on labor. Conditions in the iron and steel and coal regions
of Pennsylvania were typical; workers were held in a sort of feudal
bondage, shackled by the law of the masters, and killed, if they went
on strikes, by the masters' police.

The i86o's-9o's was the epoch of the industrial capitalist, who par-
ticipated directly in industry. But only within limits; for the specula-

360 The Decline of American Capitalism

tor was everywhere and the financial capitalist made his appearance
with the development of monopolist combinations. Technological
changes, large-scale production, and competition drove inexorably to
industrial concentration and corporate combination. The profits of
monopoly were tremendous; the Standard Oil Company, with an
original capitalization of $1,000,000, between 1(882 and 1906 paid out
$548 million in dividends, while other millions were represented by
reinvested profits and cash resources.^'^ Equally tremendous were the
profits of trustification; the series of combinations in the steel industry,
which culminated in the United States Steel Corporation, yielded the
promoters profits of at least $150 million.^^ Profits of this type were
often fortuitous; in order to prevent the revival of ruinous competi-
tion and to form the steel trust, Carnegie was paid $447 million for
his interests, twice what he would have accepted two years previously.
By 1900, the industrial capitalist was swiftly receding into the limbo of
small-scale industry or was becoming a financial capitaUst, with inter-
ests in a multitude of enterprises, promoting, speculating, financing,
not engaged directly in production. The Standard Oil multi-mil-
lionaires, an oligarchy dominated by John D. Rockefeller, were now
promoters, speculators, and bankers on a large scale; "their resources
are so vast," said one financier, "there is an utter absence of chance"
in their manipulations.^^ Another source of great fortunes (Morgan,
Stillman) was investment banking, growing with the expansion
of corporate enterprise and trustification and allied with promotion
and speculation. For the separation of ownership and management
vested control increasingly in the financial capitalists and the great
banks. Industrial concentration was paralleled by centraHzation of
financial control, of which the dominant institutional expression was.
the House of Morgan.

The swifdy rising stream of national wealth was deflected into
other, if minor, channels — politics, patent medicines, journalism, the
law. Politics favored predatory capitalists more than corrupt politi-
cians; it served the capitalist class in general and special capitalist
groups in particular. But there were many chances for the politician;
they expected, and got, something: in return for handing over the
nation's natural resources to capitalists or for giving them tariff bene-
fits. "If I had my way," said one politician, "I would put the manu-
facturers over the fire and fry all the fat out of them." *° Millionaires
who looted traction systems (Yerkes, Ryan) worked hand in hand
with municipal political machines, stealing franchises and plunder-
ing the public. The clash of predatory interests gave lawyers their

Class Distribution of Wealth 361

opportunity, especially the corporation lawyer, who twisted the law
(e.g., the "due process" clause enacted in the interest of the Negro,
but distorted to protect the "rights" of capital) and swayed courtrooms
on behalf of his corporate clients. Journalism cashed in on advertising,
capitahzed public prejudices, and protected capitalist interests; the
mercenary struggle for circulation between Hearst and Pulitzer con-
tributed to the making of the Spanish-American War. Under the
forms of bourgeois democracy, class rule needs the services of journal-
ism and the law, and they get their share of the spoils. The beginnings
of American imperialism, from 1880 to 1900, swelled the stream of
capitalist wealth. In Chile and Peru, Henry Meiggs and William R.
Grace (the "Pirate of Peru") made substantial fortunes exploiting
natural resources, promoting railroads, organizing banks, mixing in
dirty, murderous poUtics. Minor C. Keith, the "American Cecil
Rhodes," piled up immense wealth as the spearhead of American eco-
nomic, financial, and political penetration of the Caribbeans, creating
an empire fertilized with the blood of peons, ruled over by the monop-
olist combination, the United Fruit Company, with its banana and
other plantations, its railroads, ships, and banks, protected by the might
of the American government.*^ . . .

In 1892, the New York Tribune published a list of 4,047 American
fortunes of $1,000,000 and over, which shows quite clearly the change
in the dominant form of wealth since 1845.*^ Of the 4,047 millionaires,
1,140 or 28% secured their wealth from manufactures. The next
largest group, merchandising, numbering 986 millionaires, included,
however, great merchants engaged in other enterprises as well; thus
of Marshall Field's $120 million estate, his interest in Marshall Field
and Company was valued at $3,400,000, the balance including in-
vestments in (besides real estate) 150 industrial, public utility, and
financial corporations. There were 468 fortunes connected with real
estate; 410 with transportation and communication, including 186 rail-
road magnates; 356 with banking, brokerage, and insurance; 286 with
mining, of which seventy-two were based on the production, refin-
ing, and transportation of oil; and 168 with forest ownership and
lumber manufacture. Of the eighty-four millionaires who derived their
fortunes from "agriculture," forty-seven were Western cattle ranchers,
a group of whom President Theodore Roosevelt's land commission
said that "hardly a single title is untainted by fraud;" fifteen were
owners of plantations in the South, and six owned plantations in Latin
America. The professions contributed seventy-three fortunes of $1,000,-
000 and over; sixty-five of them belonged to lawyers, mostly corpora-

362 The Decline of American Capitalism

tion lawyers, and only three were based on accumulations of patent
royalties.

What manner of men were these millionaires, who got into their
hands the greater part of the wealth produced by the labor of a na-
tion? Their attitude toward labor was expressed by the management
of the Carnegie Steel Company, who provoked the bloodshed at
Homestead in order to crush unionism, and one o£ whom said: "If
a workman sticks up his head, hit it." *^ Their general attitude was ex-
pressed by CorneUus Vanderbilt: "Law? What do I care for the law?
Haint I got the power?" And by J. Pierpont Morgan: "I owe the
public nothing. Men owning property should do what they like
with it." **...*

From 1900 to 1914, the accumulation of great wealth, because of the
slowing down of the rate of economic development and the growth
of monopoly capitalism, became increasingly dependent upon the re-
capitalization of industry, upon promotion and speculation. As con-
centration of income was augmented, and fortunes became still more
swollen, financial capitalists tightened their grip upon corporate in-
dustry. The combination movement swept onward, piling up paper
claims upon production and income. The "water" in the United States
Steel Corporation, whose capitalization of $1,400 million was based
upon tangible assets of only $682 million, was a typical case of capitaliz-
ing monopoly advantages and profits. Imperialism, moreover, became
more important as a source of wealth.

The early years of the World War were a godsend to the American
accumulators of great wealth, exploiting the agony of Europe. Scores
of new millionaires were created after the United States marched forth
"to make the world safe for democracy." European developments were
similar. Then revolution and inflation changed the distribution of
wealth. The communist revolution in Russia confiscated and socialized
wealth, along with the expropriation of the bourgeois and feudal
classes. The Succession States broke up many of the large estates of
the old aristocracy. Inflation wiped out much of the wealth of the
middle class, but financial and speculative capitalists were enriched.

* "Man is a beast of prey. The tactics of his living are those of a splendid beast
of prey, brave, crafty, and cruel. ... A beast of prey is everyone's foe. Never does
he tolerate an equal in his den. Here we are at the root of the truly royal
idea of property. Property is the domain in which one exercises unlimited power,
the power that one has gained in battling, defended against one's peers, victoriously
upheld. It is not a right to mere having, but the sovereign right to do as one wills
with one's own." Oswald Spengler, Man and Technics (1932), pp. 26, 28. The
Prussian Junker and the capitalist are geistige brothers under the skin.

Class Distribution of Wealth 363

The devastating inflation in Germany liquidated many fortunes, and
few escaped intact, particularly those based on "fixed" investments;
but out of the general ruin a few monstrously large fortunes arose.
Inflation and deflation produced similar results in other European
countries on a smaller scale. Post-war France illustrated beautifully how
abstinence is the source of great wealth. In the "recovered" provinces
of Alsace-Lorraine, industrial enterprises expropriated from the Ger-
mans, worth 8,000 gold francs were sold secretly to a score or two of
Frenchmen for 180 milHon paper francs. One of the beneficiaries was
the Comite des Forges, the steel trust, which received tremendously
valuable iron mines and works.*' In general, because of economic
crisis and decline, the accumulation of wealth in post-war Europe con-
sisted mainly of the redistribution and concentration of existing wealth;
new fortunes usually arose out of speculation, financiering, and the
recapitalization of industry by means of monopolist combinations,
national and international.

In the United States the post-war period was characterized by an
increasing concentration of wealth and the augmenting of great for-
tunes. Mergers, combinations, and speculation yielded enormous prof-
its. Foreign investments became an increasingly important source of
capitalist wealth. On the basis of income-tax statistics there were, in
1929, probably 30,000 American millionaires, compared with 7,000 in
Great Britain. In this same year, 504 multi-millionaires with incomes
of $1,000,000 up"*® held claims to wealth amounting to over $30,000
million, or nearly one-third more than the national wealth of Italy.
This immense wealth was in the form of paper claims upon produc-
tion and income. Marx said that wealth in the capitaHst mode of pro-
duction takes the form of an immense accumulation of commodities;
from another angle, it may be said to-day that capitalist wealth takes
the form of an immense accumulation of paper. In the great Amer-
ican fortunes, landownership is relatively unimportant except in the
case of some fortunes based on urban realty (ownership of natural
resources by corporations is, of course, extremely important). The
wealth is represented by investments in a broadly diversified group of
corporate enterprises, with a backlog of government bonds. In 1929,
incomes of $5,000 up reported ownership of $5,373 million of tax-
exempts,*^ in addition to other government bonds. In the case of
fortunes with yearly incomes of $100,000 to $150,000, their wealth con-
sisted 58.3% of stocks and bonds, including foreign securities, and
91.9% in the case of fortunes with incomes of $1,000,000 up.*^

The characteristic form of modern capitalist wealth— paper claims

3^4 The Decline of American Capitalism

upon production and income — contrasts sharply with older types o£
fortunes. The wealth of the feudal aristocracy was associated with
land, that of industrial capitalists with particular enterprises; both
had a tangible form and definite habitation. Contemporary capitalist
fortunes, on the contrary, are Hquid, mobile, intangible, a mass of
paper rights to ownership. At the basis of this development are the
concentration of industry, the separation of ownership, management,
and control, and the transformation of the industrial capitalist into the
financial capitalist. One aspect of these developments is the increasing
importance of the passive, wholly parasitic rentier, the mere clipper of
coupons. It has been estimated that individual trusts managed by
banks for their owners, whose only function is to receive and spend
the income, are worth over $25,000 million. The value of such trusts,
for national banks alone, rose from $922 million in 1926 to $4,319
million in 1930.'^^ Ownership here is separated even from administra-
tion; private income is drawn from collectively produced and collec-
tively managed wealth.

Modern wealth is separated from direct participation in industry;
its owners are absentee capitalists, with management and control
assuming institutional forms. Because of this the possession of wealth
does not carry responsibilities with regard to the sources from which
it is derived. The lord of the manor had definite obligations, either
legal or customary, to the tenants on his land, the serfs who cultivated
his domains, and his household servants. Where the industrial capital-
ist recognized obligations to the workers in his factory or the consum-
ers of his product, they were forced upon him by his identification
with a particular enterprise. The modern financial capitalist, whose
fortune is scattered in scores of corporate enterprises and perhaps in
almost as many countries, effectively escapes such responsibilities.
Even if he owns a large block of securities in a particular enterprise,
he may plead that the responsibility is not his but that of management.
Thus, in 1926, when John D. Rockefeller, Jr. was asked to influence
the management of a railroad, which was waging ruthless war upon
its striking workers, the unctuous son of an unctuous father replied:

"The facts are that the combined holdings of our family, together
with those of the funds to which this stock may have been given,
represent considerably less than 25% of the stock of this company.
[He was, however, the largest single stockholder.] Only two of the
twelve directors can be regarded in any sense as representatives of our
interests. The management of this company is entirely in the hands

Class Distribution of Wealth 365

o£ the board of directors and, no matter what my personal views may
be, I don't control the situation." ^^

This is a clear example of relations of private claims to ownership
persisting within what are essentially collective or social forms of
production and management. Wealth has assumed a form which makes
it ripe for expropriation and socialization: the wealth expropriated
from the producers reverts to them in the form of social property,
serving the whole of society. For the antagonism between the two
opposites, proletariat and wealth, is, in the words of Marx, resolved
by the synthesis of socialism, in which both private property and the
proletariat disappear. . . .

An expression of private property and class rule, the unequal dis-
tribution of wealth results in great fortunes at one extreme and pov-
erty at the other. All legislative efforts to break down the concentra-
tion of wealth have failed; it increased tremendously in the United
States following the introduction of income and inheritance taxes.
The revolutionary bourgeoisie, which objected to great feudal fortunes
and in many cases confiscated them, considered the "free ownership"
of property equivalent to social equality; but bourgeois private prop-
erty constituted the starting point of accumulations greatly exceeding
the feudal fortunes. In the United States the middle class from 1880
to 1914 waged bitter war upon "tainted wealth" and "unearned in-
crement," but this class defended the system of private property out
of which great fortunes arose.

The augmenting of capitalist wealth depends upon an increasing
output and absorption of capital goods, the means for the exploitation
of labor and the production and realization of surplus value and profit.
Under the conditions of decline, with the output of capital goods and
capital accumulation moving downward, wealth decreases relatively,
if not absolutely. Unemployment and lower wages make still smaller
the workers' share of the national wealth. Concentration moves up-
ward, on a lower level. More than ever capital claims and speculation
become the source of capitalist wealth. But in the measure that wealth
tends to decrease, the struggle for a larger share among the capitalists
becomes more intense, aggravating the maladjustments and instability
of capitalist production. Wealth takes more and more the form of debt,
particularly of public debts. This is an old trend acquiring new vigor.
The government debts of the world rose from $7,500 million in 181 5
to $30,000 million in 1900 and $250,000 million in 1933, a stupendous
increase even after making allowances for the changes in the purchas-
ing power of money. The total public debts of the United States,

366 The Decline of American Capitalism

which rose from $4,850 million in 1912 to $36,822 million in 1932,
yielded an interest of $1,500 million; a similar amount was yielded by
the national debt of England.^^ Since ownership of government bonds
is "bunched" in small groups, and taxation covers the whole of society,
the burden of public debts is enormous.* They tend to increase, more-
over, as the capitalist state makes larger and larger expenditures to
overcome crisis and economic decline, and to prepare for war under
the conditions of intensified imperialist rivalry. Not only does the
distribution of wealth become more unequal, it also becomes more
parasitic, for in the form of debt it is a first claim upon the diminishing
fruits of labor. Wealth now tends to increase in the hands of the few
only by an absolute lowering of standards of living among the many.
Both the forms of capitalist wealth and its unequal distribution are
underlying forces in the creation of cyclical crisis and breakdown, and
the decline of capitalism. But those very forces are simultaneously an
expression of developments which make possible a new social order.
Capitalist wealth as a mere mass of paper claims upon production
and income grows out of the socialization of production, the possi-
bihty of its transformation into social property, or socialism. And the
very conditions of large-scale industry, resulting in the separation of
ownership and management, make the industrial proletariat increas-
ingly the carrier of a new social order. In this new order, the work of
production does not pile up great fortunes whose only function is to
own and exploit.

* Most public expenditures, out of which public debts arise, are non-constructive.
Only 1.3% of the expenditures of the national government in the United States
(1927) was for social services, including education, 9.6% in France, and 15.6% in
Britain (1929). On the other hand, the American expenditures on war (including
pensions and debt interest and retirement, most of the debt being incurred for war
purposes) were over 70%, the French 69%, and the British 70%. Paul Studenski,
"Public Expenditures," Economic Foundations of Business (1932), p. 450. The per-
centages are not wholly comparable because of differences in government functions;
thus the national government in the United States, unlike the French and the British,
has little to do with education. But they are indicative of the general situation.

Summary

c,

lONTRARY to the claims of the myth-makers of the "new capitaUsm,"
and wholly in line with the nature of capitalist production, there was
an upward movement in the concentration of income and wealth dur-
ing the prosperity of 1923-29.

The solid foundation of the concentration of wealth and income is
private ownership of the means of production, upon which depends
the livelihood of society, and which permits the owners to exploit the
workers. But forms of ownership and exploitation change. The capital-
ist originally combined the functions of exploitation and management;
he was at one and the same time the organizer of industry and its
plunderer. With the development of large-scale, corporate industry,
however, the separation of ownership and management has deprived
the capitalist of his managerial functions. The multiplication of stock-
holders— with ownership a monopoly of the bourgeoisie, the working
class having an insignificant stake in corporate ownership — has vested
management in a class of hired professional managers, while control
is usurped by the financial capitalists, who merely rule and exploit.
The basis of this development, the socialization of production, is also
the objective basis of socialism. For modern corporate industry retains
private property relations within the relations of social production and
social property.

Unequal distribution of income and wealth is identified with all
the exploiting relations of capitalist production, with all the forces of
cyclical crisis and breakdown. They are also identified with the decline
of capitalism, for it is the socialization of production which has so in-
creased the productive powers of society that they choke capitalism
with the abundance they are capable of yielding. These conditions de-
mand new social relations of production, a new social order. Resistance
to this demand by the capitalist class is responsible for increasing in-
stability, for economic decline, for the social convulsions now afflicting
the world.

The capitalist expression of the socialization of production is monop-
oly capitalism, dominated by the financial oligarchy. Since monopoly
retains all the old relations of private property, it is identified with

367

368 The Decline of American Capitalism

restriction of production, with economic decline, with the export of
capital and imperialism as the means of broadening the economic
basis of national capitaUsm, of securing markets for surplus capital
and surplus goods. Thus the progressive possibilities of modern in-
dustry are turned into their negation, into a source of want, unemploy-
ment, and war.

As capitalist decline becomes worse, mass disemployment limits the
production and realization of surplus value, the accumulation of capital.
All the stronger is the drive of capitalism toward imperialist aggression
and war. For in foreign markets and the overseas investment of capital
the capitalist class, especially the financial oligarchs who dominate
monopoly capitalism, see a way out of the crisis. As the inner sources
of wealth tend to dry up because of economic decline, as surplus capital,
unable to find profitable investment at home, becomes more threaten-
ing, all the highly industrial nations of the world concentrate on the
task of conquering foreign markets. Monopoly capitaUsm and im-
perialism, arising out of capitalist production and its concentration of
income and wealth, are interlocked with the decline of capitalism, and
inevitably bring on the threat of more devastating wars.

PART SEVEN
Monopoly Capitalism and Imperialism

Introductory

vU NDERLYiNG the resplendent mythology of the pre- 1929 prosperity was
the real and contradictory movement of economic forces. Instead of
realizing prosperity everlasting, and precisely because of the economic
upswing which created the illusion, it marked the final transformation
of competitive capitalism into monopoly capitalism, and of monopoly
capitalism into imperialism. This transformation was the feature of
post-war developments in the United States, conditioning prosperity,
the character and prolongation of the depression, and the decline of
American capitalism. These are the major aspects of the transfor-
mation:

The increasing concentration of industry and centralization of cor-
porate control under the domination of monopolist combinations of
capital.

The increasing concentration of financial institutions under control
of a financial oligarchy, which dominates economic life by the com-
bined mastery of monopolist combinations, investment resources, and
credit.

The final realization of the rule of finance capital, /. e., the fusion
of industrial and banking capital; tighter centralization of the financial
control of industry.

The export of capital on a constantly greater scale and the consoli-
dation of imperialism as the definite expression of American capital-
ism; an intensified struggle for foreign markets to absorb surplus
capital and goods, an aggressive foreign policy, larger armaments,
reaction, and the threat of war.

Two important changes in class relations: final suppression of the
farmers as a class capable of independent action on a capitalist basis;
final transformation of the middle class from an enemy into a depend-
ent of monopoly capitalism, and the consequent collapse of the
struggle against the trusts.

The growth of monopoly and imperiaHsm, inescapably determining
the future of American (and world) capitalism, comprises the real
significance and historical character of the pre-1929 economic changes
— not the temporary prosperity and its vulgar mythology. While the

372 The Decline of American Capitalism

apologists were crowing that hard times could only prevail among
lesser peoples outside the law of American prosperity everlasting, the
contradictory nature of prosperity's development produced a depression
worse than in any other country. While the apologists were crowing
about national self-sufficiency, the export of capital and imperialism
were binding the American economy with new chains of steel to the
economy of the world market. Monopoly and imperialism contributed
to the coming of depression and its prolongation, for they express all
the underlying contradictions and antagonisms of capitalist production.
Yet the efforts of the NRA, of state capitalism, to "assure" a new
permanent prosperity tend to strengthen monopoly and imperialism,
a fundamental contradiction which dooms the program to disaster.
Monopoly and imperialism are not new; they have been developing
in the United States since the i88o's. What is new is their maturity
and suprenmcy, and their significance as elements in the decline of
capitalism.

CHAPTER XX

Trusts: Concentration and Combination

Jl RUSTS began to assume definite shape in the i88o's, and have since
increasingly dominated the American economy.* The first social-
poUtical reaction was: "Smash the trusts!" But they grew inexorably.
The second reaction was: "Regulate the trusts!" But they bent regu-
lation to their own purposes: trusts became more and more ascendant.
Regulation, at least in theory, was still suspicious: some limits ought
to be imposed upon the trusts. Now apologists of the NRA, of state
capitalism, urge another policy: complete acceptance, even the
strengthening, of the trusts, with, however, "social control." The
poHcy has thus been formulated by Rexford Guy Tugwell:

"We are resolved to recognize openly that competition in most of its
forms is wasteful and costly; that larger combinations must in any
modern society prevail. We go further: we say that they should be
allowed to prevail, but only under such conditions of control as assure
a just distribution of the wealth they develop and now accumulate to
the people as a whole." ^

This policy is not altogether new. For in the past it was argued
that regulation should destroy the evil but retain the good in trusts,
as they "organize" production and "implement" prosperity. The suffi-
cient answer is the disorganization of industry which led to the
economic catastrophe of 1929-34. Why should the "new" policy be
more successful? . . .

Trusts, the monopolist combinations of capital, arise out of free
competition and accumulation, out of the struggle for profits and
survival in which the stronger garner victory. Underlying this de-
velopment was the technical-economic transformation of industry,
augmenting fixed capital and the scale of production. Concentration
is the basis of combination. While both are a reaction against competi-
tion and the result of accumulation, the emphasis is different. Indus-
trial concentration is essentially technical-economic, originating in the
efficiency of larger producing units. Combination is essentially financial,

* And, of course, the economy of other industrial countries. In addition the trusts, by
means of the export of capital and imperialism, have increasingly dominated the economy
of non-industrial and economically backward countries.

373

374 The Decline of American Capitalism

the centralization of control, exploiting but not limited by industrial
concentration and technical-economic efficiency. Both concentration
and combination yield greater control over competition, markets,
prices, and labor.

The distinction between concentration and combination is not
merely theoretical; it involves a difference in historical stages and in
forms of class control. In the United States, before 1898, trustification
was primarily industrial concentration, under control of industrial
capitalists; * after 1898, trustification was primarily financial combina-
tion, under control of financial capitalists, promoters, and bankers.

Concentration after the Civil War developed almost as rapidly as in-
dustrialization itself. This was particularly marked in the 1870's.
While the number of manufacturing establishments was virtually
stationary, rising from 252,148 in 1869 to 253,852 in 1879 (including
a multitude of hand and neighborhood enterprises, which minimize
the trend toward concentration), capital investment rose from $1,694
million to $2,790 million, wage-workers from 2,054,000 to 2,733,000,
and output from $3,386 million to $5,369 million.^ This process of
industrial concentration was the basis of trustification.

The primarily industrial character of concentration appears clearly
in the development of three typical concentrated enterprises: the
Standard Oil Company, the Carnegie Steel Company, and the meat

* Concentration and combination proceeded almost simultaneously on the railroads,
because of greater capital requirements and more ruinous competition. While manufac-
turers were dominated by the industrial capitalist operating with his own money, rail-
roads were dominated by the financial capitalist operating with the money of others,
including the government. Separation of ownership, management, and control, by the
multiplication of stockholders, appeared on a large scale first on the railroads. Buccaneers
of the type of Vanderbilt, Daniel Drew, Gould, Jay Cooke, Collis Huntington, and Lcland
Stanford plundered the railroads at a time when similar plundering was almost unknown
in other fields of industry (except municipal traction, where financial plundering, mis-
management, and political corruption were at least as great as on the railroads). Bucca-
neering, mismanagement, and ruinous competition threw most of the railroads into bank-
ruptcy from 1879 to 1899. This gave bankers and other financial capitalists another
opportunity. Railroad reorganizations, mainly by J. P. Morgan and Company, not only
yielded great profits but promoted combination and the tightening of financial
control. By 1900 more than half the railroad mileage was included in six systems:
Morgan, 19,073 miles; Morgan-Hill, 10,373 miles; Vanderbilt, 19,517 miles; Pennsylvania
Railroad, 18,220 miles; Harriman, 20,245 miles; Gould, 16,074 miles. As their bankers
and members of the directorates, the Morgans had considerable influence over the Vander-
bilt and Pennsylvania systems. Harriman and Gould were allies, and owned stock in
banks and insurance companies. Harriman, in particular, was associated with the National
City Bank of New York, dominated by Rockefeller interests. Sec Lewis Corey, The House
of Morgan (1930), Chapters XV-XVII and XIX.

Trusts: Concentration and Combination 375

packers, Armour and Company. Increasing efficiency, use of the most
improved technology, and enlargement of the scale of production were
the basic factors. Standard adopted the most economical methods of
refining and marketing and promoted the more efficient pipeline
transportation. Carnegie Steel was always introducing new processes,
including coke, making plant improvements and extensions. The
Armours led in the elimination of waste, the introduction of chemical
control for better quality and more utilization of by-products, and the
use of refrigerator cars. Enlargement of the scale of production pro-
duced integration, stimulated by competitive purposes of control over
sources of raw materials and transportation and by efforts to secure
the profits of related fields of production to offset the fall in the rate
of profit. Carnegie Steel acquired iron and coal mines, coking plants,
and means of transportation. The Armours owned stockyards, their
own refrigerator cars, and distribution systems. While Standard adopted
the plan of separate companies, under common ownership, specializing
in production, transportation, refining, and marketing, the whole con-
stituted one giant integrated concern. Efficiency, with its lower costs
and prices, was used to wage ruthlessly the battle of competition.
Except in the case of Standard Oil, and even with them only to a
minor degree, competitors were not absorbed, they were destroyed.
(The existence of many small producers made it unprofitable to absorb
them.) Carnegie was against combination because it meant including
inefficient plants; his emphasis on competition was typical of concen-
tration and the industrial capitalist. Although efficiency was primary,
it was not the only factor; competition was also waged by means of
price wars, by terrorism, especially in the case of Standard Oil, against
competitors, by extorting discriminatory rates and rebates from the rail-
roads. Monopoly elements yielded particular advantages. Carnegie
Steel became dominant only after acquiring the Frick coking interests,
coke being indispensable in the newer and more efficient metallurgical
processes; the dominance became almost impregnable with the achieve-
ment of monopoly in unfinished steel. Standard Oil had a monopoly of
pipeline transportation and the Armours of refrigerator cars, placing
competitors at an enormous disadvantage. The monopoly elements
were strengthened by discriminatory agreements ^yith the railroads;
Standard Oil systematically used this method, acquiring large stock
interests in railroads to invigorate its influence. Both "unfair" com-
petition and the monopoly elements were an abandonment of efficiency
as the means of waging the competitive struggle. All three concerns
were built up by reinvestment of profits, not with the money of out-

37^ The Decline of American Capitalism

side investors. This is as significant of concentration as technical-
economic efficiency, which itself yielded the great profits (involving
exclusive exploitation of new inventions and processes) whose rein-
vestment enlarged the scale of production. Although Carnegie and
Armour started with money made in other ventures, their enterprises
were built up with reinvested profits, the direct capitalization of surplus
value. The original capital of Standard Oil was $1,000,000 (much of it
earlier oil profits), and not one penny of new capital was thereafter
invested. The masters of concentrated concerns were essentially in-
dustrial capitalists, whatever their origins; they were identified with
one enterprise, responsible for it and active in its affairs, although
management was increasingly functionalized and performed by em-
ployees. And all of the masters sweated labor, drove after more and
more surplus value, crushed unionism. Concentration gave terrific
control over labor. The Knights of Labor declared a boycott against
Armour products in 1886, and Carnegie Steel is inseparably associated
with the ferocious breaking of the Homestead Strike in 1892.

While industrial concentration usually results in greater efficiency,
it has definite limits as a means of overcoming competition and rais-
ing profits. More efficient productive equipment costs money, as do
price wars; the new equipment, moreover, comes into general use,
competitors adopt still more efficient methods of production, and the
rate of profit moves downward. Where competitors are small and
numerous, they may be killed off; but the survivors, who become
stronger, cannot be as easily exterminated. Concentration makes com-
petition more destructive and unprofitable. While Carnegie Steel was
the dominant factor in the industry, other enterprises, partly by con-
centration and partly by combination, had become almost as powerful.
By 1900, the iron and steel industry was on the verge of a most
destructive competitive war; all the more so as Carnegie's rivals were
identified with great financial interests, particularly the Morgans. The
threat was overcome by combination, by merging the rivals into the
United States Steel Corporation. The combination was not, however,
formed by industrial capitalists but by financial capitalists, by promoters
and bankers. It marked the retirement of Carnegie, the most powerful
industrial capitalist; United States Steel was dominated by the financial
overlords of the House of Morgan.

There had been combinations before 1898; but their number was
limited and they had been formed primarily by industrial capitaHsts.
In some cases, however, there was active participation by promoters
and bankers, whose profits were large. Formation of the Standard Dis-

Trusts: Concentration and Combination 377

tilling and Distributing Company, the Whisky Trust, yielded $250,000
in stock to the underwriters for every $100,000 cash advanced to buy
plants, and another $150,000 to the promoters.^ After 1898 promoters'
profits became a decisive factor. A series of combinations in the iron
and steel industry, in 1 898-1900, netted the promoters nearly $100 mil-
lion in profits. United States Steel paid the Morgan syndicate a
"commission" of $62,500,000, in addition to large amounts of common
stock issued as bonus with preferred for property or cash.'* From now
on the profits of promotion (a charge upon prospective surplus value)
were a major source of income for the rapidly developing financial
oligarchy.

Considerations of increasing efficiency were not dominant in com-
bination. On the contrary, efficiency was usually sacrificed by the inclu-
sion in combinations of obsolete, inefficient, or unnecessary plants.
Where, in general, industrial concentration destroyed competitors by
increasing efficiency, combination absorbed competitors, who usually
were willingly absorbed because they received huge profits from the
overcapitaUzation of the new enterprises. Combination aimed to con-
trol competition and prices, to check the fall in the rate of profit by
limiting competition and so "earn" monopoly profits. According to one
bourgeois economist: "Least influential of all was the expectation of
reducing costs. The large proportion of trusts formed which accepted a
loose form of organization indicates that reduction of costs was not the
dominant objective. Many consolidations acquired inefficient plants
and clearly relied more on buying out competitors or killing them off
by resort to unfair methods of competition than on driving them out
by lower prices based on lower costs." ^ MonopoHst combinations were
made possible by previous industrial concentration, and they promoted
concentration; but their emphasis was financial, not industrial, recapi-
talizing combinations on the basis of prospective monopoly profits.
Their tendency, one of the elements of capitalist decline, was to retard
the development of efficiency, although (another contradiction of capi-
talist production), combinations developed new forms of competition;
this forced efforts to increase efficiency because of the downward tend-
ency of the rate of profit and resulted in more and larger combinations.

By 1904, there were 440 great American trusts, with a capitalization
of $20,379 million; one-third of the capitalization was in seven com-
binations, over which towered the United States Steel Corporation.^
Trustification grew in manufactures and in mining, on the railroads
and in municipal traction.

Two important developments accompanied the combination move-

37^ The Decline of American Capitalism

ment: the multiplication of stockholders and the centralization of
financial control over corporate industry. Combinations, mainly to pay
the huge profits of promoters and former owners, needed large amounts
of new capital, which could be raised only by selling masses of stock
to the general public. Ownership was no longer vested in the active
industrial capitalist, but in a mass of investors; ownership and manage-
ment were separated, while control was usurped by financial capitalists.
Many of the older industrial capitalists became financial capitalists.
Armour acquired large interests in railroads, banks, and insurance
companies. In the 1890's the Rockefeller oligarchy became a group of
financial capitalists, with far-flung interests in all sorts of enterprises,
active speculators and promoters on a large scale. They typified the
fusion of industrial and banking capital: with the huge cash resources
of Standard Oil the Rockefellers went into banking; in cooperation
with James Stillman they built up the National City Bank of New
York, which engaged actively in promotion, speculation, and invest-
ment banking. At the same time banking, particularly investment
banking, moved toward more direct participation in industry. For the
banks were no longer mere intermediaries who mobolized the nation's
savings for the use of industry, they were rapidly becoming the masters
of industry. The separation of ownership and management did not
vest control in management but in financial capitalists and the banks
which they controlled or with which they were in "community of
interest." Commercial banks became increasingly investment institu-
tions; when this was prohibited by law, the banks organized invest-
ment affiliates. And financial control of industry was increasingly insti-
tutionalized in the banks, including private investment banking houses.
They acquired control of the resources of insurance companies and
used them for investment and promotion purposes. Investment banking
houses in turn acquired control of banks (and insurance companies)
to facilitate their operations. The "money power," with its control of
investment resources and credit, imposed its dominion over trustified
industry. By 1912, 180 individuals representing eighteen investment
banking houses, commercial banks, and trust companies held 746 inter-
locking directorships in 134 corporations with total capitalization or
resources of $25,325 million. The most powerful group, the House of
Morgan, its affiliate, the First National Bank, and its ally, the Standard
Oil National City Bank, held 341 directorships in 112 dominant cor-
porations with total capitalization or resources of $22,245 million,
distributed as follows;

Trusts: Concentration and Combination 379

Thirty-four banks and trust companies: resources, $2,679 i^iHioi^y
13% of all banking resources.

Ten insurance companies: resources, $2,293 million, 57% of all
insurance resources.

Thirty-two railroads: capitaHzation, $11,784 million; mileage, 150,000.

Twenty-four industrial and commercial combinations: capitalization,
$3,339 million.

Twelve public utility companies: capitalization, $2,150 million.^

This fusion of industrial and banking capital, which thrust power
into the hands of a financial oligarchy operating mainly with the
money of others, increasingly dominated capitalist production. The
oligarchy did not merely participate in combinations, it ruled ruthlessly.
The system was one of private property without direct ownership and
responsibility, without the control of ownership; financial capitalists
garnered their largest profits by plundering stockholders, by violating
the "rights" of private property. And the combinations and their finan-
cial overlords were ruthless in their exploitation of labor; only on the
railroads was unionism able to establish itself successfully. . . .

Combination and the centralization of financial control proceeded
steadily, in spite of the opposition of agrarian and middle class radicals,
in the midst of clamor against the trusts and regulation by the govern-
ment. Legislation against the trusts merely forced them to adopt new
and, ironically, more impregnable forms.* When courts declared illegal
the original trustee device (whence the term "trust"), which combined
corporations by assignment of stock and control to a board of trustees,
it resulted in the development of the most successful method of com-
bination, the holding company. For the holding company merely owns
stock, and may combine and control corporations by ownership of a
bare majority of their stock. The government's efforts to "smash" or
"regulate" the trusts led them to adopt more clever means of evading
the law (making the corporation lawyers indispensable and million-
aires) ; public clamor was stilled with minor reforms, in the interest of
trustified industry itself, and regulation ended in regularization, the
consolidation of the power of the trusts. In the midst of the struggle

* As in the case of the "due process" clause in the constitutional amendment intended
to protect the Negro's rights, which was instead transformed into a bulwark of the
"rights" of corporate property, the anti-trust acts were used against the workers, who
supported the middle class and agrarian radicals in the demand for legislation against
the trusts. Labor unions were increasingly considered by the judiciary as "combinations
in restraint of trade." Because of its economic and political weight, the capitalist class
transforms concessions, wrung from it by other classes, into new means of domination
and oppression.

380 The Decline of American Capitalism

against the trusts, in 1907, the Aluminum Company of America was
organized: the one perfect monopoly, with almost unlimited control
over sources of raw materials, manufactures, and distribution. In 191 1,
the United States Supreme Court "dissolved" the holding company
trust. Standard Oil, and the operating company trust, American To-
bacco; but simultaneously, with its "rule of reason," the Court accepted
and justified trustification. After dissolution, Standard Oil was still
under common control; the separate companies, instead of specialized
concerns, became more fully integrated, combining production, refin-
ing, and distribution. If Standard's monopoly control was lessened, it
was not a result of the Court's decision but of the enormous growth
of the oil industry due to the automobile. The needs and patriotic
hysteria of the World War were exploited by the trusts to consolidate
their control over industry. Trust magnates, formerly denounced as
criminals and "undesirable citizens," blossomed forth as $i-a-year heroes
to "make the world safe for democracy" (meanwhile protecting their
own interests and the interests of their class). And in 1920 came the
final legal victory of the trusts: the Supreme Court decision denying
the government's petition to dissolve the United States Steel Corpora-
tion. The Steel Trust, said the Court, six to three, was "not monopoly,
but concentration of efforts with resultant economies and benefits." ^
Concentration and combination now proceeded on an unprecedented
scale. Trusts again strengthened their control in the depression of
1921-22 (one of the sweet uses of capitalist adversity), and made new
conquests in the ensuing period of prosperity. Never were there as
many mergers; the number of firms which disappeared through merg-
ers rose from 760 in 1920 to 1,245 in 1929; disappearances were 140%
higher in 1930 than in 1922.* Industrial concentration was unusually
active, stimulated by the upswing in the output of capital goods because
of the growth of old and new industries and of mass production for
mass markets, on the basis of increasingly larger masses of fixed capital
required in modern industry. Concentration was especially marked in
the newer industries, which do not usually repeat the small-scale phases
of the older industries: they adopt the newer technology and large-
scale production at the start (and are usually promoted by financial
capitalists). Profits were high, and a large part of them was reinvested
in more efficient equipment and plant extensions. But the higher com-
position of capital, excess capacity, and intensified competition forced
down the rate of profit. This led to the introduction of more efficient
equipment to raise the productivity of labor and to more industrial
concentration, either by enlarging the plants of a particular enterprise

Trusts: Concentration and Combination 381

or by consolidating formerly independent plants. But because of the
restriction of markets, the greater the concentration and efficiency, the
greater and more menacing was competition. For concentration, as in
the earlier stages, was still determined primarily by technical-economic
efficiency, the production of more goods at lower cost and their sale at
lower prices; this meant a fall in the rate of profit because of intensified
excess capacity and competition. Hence a strengthening of the move-
ment toward monopolist combination, to control production, markets,
and prices.* Combinations, however, went beyond this purpose, and
became involved with the purely financial and speculative manipula-
tions of the financial oligarchy. As, under the conditions of monopoly
capitalism, the production of financial and speculative profits is in-
creasingly more important than the production of goods, combination
increasingly outstrips its technical-economic basis in industrial con-
centration and efficiency: becomes more and more subordinate to the
predatory purposes of the financial oligarchy. Innumerable mergers,
reorganizations, and combinations had no other aim than the profits
of promotion and speculation. In the case of an automobile company,
whose private family ownership was transformed into "public" owner-
ship, recapitalization yielded the bankers profits of $15,000,000; the
Van Sweringen mergers and reorganizations, an evasion of government
regulation, yielded profits of over fioo milHon, $23,933,000 from one
transaction in 1929; one small airplane merger promoted by the
National City Company, investment affiUate of the National City
Bank, in addition to the bank's profit of $2,499,000, netted large profits
for "close friends, officers, and key men" who sold their stock on a
rising market.^^ Economic efficiency and corporate safety were sacri-
ficed by combination, especially where the main purpose was to inflate
values on the stock exchange or to consolidate the control of financial
oligarchs. One of the most striking examples was the stupendous and
fraudulent InsuU combination in the public utility field: it yielded
enormous profits to its promoters and favored "insiders" (including
politicians); and it crumbled easily under the impact of depression.
The "abuses" of combination were condemned by "liberal" econo-
mists, who consider the abuses as independent categories and not as

• Of the British amalgamation movement in the early post-war years, G. C. Allen,
British Industries and Their Organization (1932), p. 296, writes: "The main impulses
behind the movement were the wish to ensure markets and supplies and the hope of con-
trolling prices." In later years the rationalization movement, both in Britain and Germany,
stressed industrial concentration and efficiency; but it included "financial rationalization,**
i.e., combination and the centralization of financial control.

382 The Decline of American Capitalism

inseparable accompaniments of monopoly capitalism. One of them said
early in 1929:

"Mergers have not proved, and are not likely to be, a cure-all for
excess capacity, overproduction, or cut-throat competition, or a royal
road to exceptionally large profits in any field. . . . They have to depend
to-day mainly upon their potential superiority in efficiency to control or
dominate the market. While such superior efficiency has been achieved
in some fields, it has not been demonstrated in every instance. . . .
Many mergers that have been promoted by financial interests in recent
years have been based upon exaggerated hopes or uninformed calcu-
lations of cost reduction and market control, and have dissappointed
investors. ... If the merger movement is going on so strongly to-day,
it is chiefly because the widespread ignorance of fundamental business
conditions and the fantastic security markets based upon this ignorance
have offered an exceptional opportunity to unload contingent securities
upon the general public." ^^

Thus the "liberal" economist persists in separating economic cate-
gories from their capitalist social relations. Combinations sacrifice
efficiency? Of course, for efficiency contributes to excess capacity and
competition, forcing down the rate of profit; monopolist combinations
aim to overcome them. They are not overcome? That is more proof
of how hopelessly capitalist production is entangled in its contradictions
and antagonisms. Investors are disappointed? Naturally; their losses
are one condition of the profits of the financial oligarchs. Monopolist
combinations may violate economic efficiency, cheat investors, and
aggravate contradictions; but they promote, and this is the decisive
factor, the profits and control of the financial oligarchy, which dom-
inates monopoly capitaHsm: an indication of constantly greater para-
sitism and decay.

The increasing concentration of industry and centralization of finan-
cial control more than justify the analysis and prediction made by
Marx.* One aspect of industrial concentration and combination is the

• "The continual retransformation of surplus value into capital displays itself as a
steady growth of the capital engaged in the process of production. This, in turn, becomes
the foundation of an increase in the scale of production and of the accompanying methods
of increasing the productivity of labor and of bringing about an accelerated producton of
surplus value. ... As the mass of u^ealth which functions as capital increases, there
goes on an increasing concentration of that wealth in the hands of individual capitalists,
with a resultant widening of the basis of large-scale production. . . . Accumulation pre-
sents itself, on the one hand, as increasing concentration of the means of production and
of command over labor; and, on the other, as the mutual repulsion of many individual
capitals. This splitting-up of social capital into a number of individual capitals is coun-

Trusts: Concentration and Combination 383

growth of corporations. In 1929, while only 101,815 manufacuring
plants out of 210,945 were under corporate ownership or control, they
employed 89.9% of the workers and produced 92.1% of all manu-
factures. Plants with an output of $1,000,000 up, less than 6% of the
total, employed 58.2% of the workers and had 69.2% of the output.^^
Industrial concentration, in terms of single plants, was as follows:

Plants with 501 or more workers, numbering 2,718, employed 3,336,-
980 or 37.8% of the workers.

Plants with loi to 500 workers, numbering 14,035, employed 2,920,-
185 or 33% of the workers.

Plants with 51 to 100 workers, numbering 12,467, employed 891,671
or 10.1% of the workers.

All other plants, numbering 181,739, employed 689,897 or 19.1% of
the workers; of these smaller plants, 95,767 employed only one to five
workers.^^

In the first category are the plants of such industrial giants as the
United States Steel Corporation, employing (in prosperity!) over
250,000 workers. In the fourth category are petty producers, mainly
non-corporate, 125,559 ^^ whom reported, in 1924, profits of $380 mil-
Hon, an average of only $3,000.^*

The single plant statistics do not, however, give a complete picture
of industrial concentration, as many of the plants are units of larger
corporate enterprises. Concentration is not measured alone by the
size of single plants; it may, and this was particularly marked in
1923-29, concentrate and integrate plants by means of common owner-
ship, management, and control. Thus, in 1929, 8,246 multiplant groups
employed 48.4% of the workers and produced 54.3% of the total
output of manufactures.^^ But multiplant groups, while measuring

teracted by their attraction. The latter is not simply a concentration of means of produc-
tion and command over labor, a concentration identical with accumulation. It is the con-
centration of already formed capitals, the destruction of their individual independence,
the expropriation of capitalist by capitalist, the transformation of many small capitals
into a few large ones. The process is distinguished from simple accumulation by this,
that it involves nothing more than a change in the distribution of the capitals that
already exist and are already at work. . , . Here we have centralization in contradistinc-
tion to accumulation and concentration. ... It is possible for vast amounts of capital
to be concentrated into one hand because comparatively small amounts of capital are
withdrawn from a number of individual hands. In any given branch of industry cen-
tralization would have reached its extreme limit if all the capitals in this industry were
fused into one. ... A growing concentration of capitals (accompanied by a growing
number of capitalists, though not to the same extent) is one of the material requirements
of capitalist production as well as one of the results produced by it." Karl Marx, Capital,
V. I, pp. 689-92; V. Ill, p. 257.

384 The Decline of American Capitalism

industrial concentration and integration, the basis of combination, do
not measure the centralization of corporate control. This appears more
fully in the distribution of net income. In 1929, 1,299 manufacturing
corporations, mainly large combinations, 1.3% of the corporations
engaged in manufactures, received 75.8% of the net income :^^ a
centralization of control much greater than industrial concentration.

TABLE I

Concentration of Corporate Income, igig-2g

NUMBER OF

PERCENT OF ALL

PERCENT OF ALL

YEAR

CORPORATIONS *

CORPORATIONS

NET INCOME

I919

996

0.29

48.4

1923

1,026

0.26

47-9

1924

901

0.21

48.3

1925

1,113

0.26

51.9

1926

1,097

0.24

54.1

1927

1,042

0.22

51.6

1928

1,238

0.25

55-9

1929

1,349

0.26

60.1

•Corporations with net income of $1,000,000 up.

Source: Computed from corporation reports in Bureau of Internal Revenue, Statistics
of Income for the respective years.

Nor is this centralization of control limited to manufactures. In 1929,
1,314 corporations, 0.27% of all corporations, had assets of $147,697
million, 44% of all corporate assets; capital stock of $48,522 million,
44.2% of all capital stock; and surplus of $29,188 million, 57.5% of all
corporate surplus.^^ Still larger was the share in corporate net income
of these giant combinations of capital, because of their monopoly
advantages; in 1929, 1,349 of them, only 0.26% of all corporations,
received 60.1% of total net income (Table I). Centralization of control
is underestimated by the statistics: net income of the larger combina-
tions does not include all the income of their subsidiaries, many of
which must file separate income-tax reports; combinations, moreover,
tend to have larger bonded indebtedness than small corporations, and
the high interest payments are not included in net income. In 1929,
238 corporations making consolidated reports covering from six to 286
subsidiaries for each corporation, reported net income of $4,148 million,
or 35.6% of all net income. Concentration of profits and centralization
of corporate control increased steadily in 1923-29: the number of cor-
porate giants rose from 1,026 to 1,349, although they remained con-
stant as a proportion of all corporations, and their share of net income

PERCENTA&E OF ALL CORPORATE
NET INCOME RECEIVED BY
CORPORATIONS WITH NET
INCOME OFtl.OOO^OOO
AND OVER- l<»Z<^

i^S _

IXO

115

no

I OS

100

l«?«

ni4

ni5

nz6

nz7

WZ8

Ra<j

XVI. CONCENTRATION AND CENTRALIZATION— 1923-29.

386 The Decline of American Capitalism

rose from 47.9% to 60.1%. Concentration and centralization are
overwhelming.

Under these conditions of centralization of control in monopolist
combinations, the small producer and other petty enterprisers are a
negligible economic factor. In 1929, 228,475 small non-corporate enter-
prises of all types reported profits of $1,836 million, an average of only
$8,000; roughly three-quarters of the total profits were derived from
trade and services.^^ The essential element in the old middle class,
the small producer, is no more a factor in capitalist production, while
the "new" middle class is dominated by the managerial employees of
corporate enterprise.* This is why the struggle against the trusts ended
in 1923-29.

Combination centralizes control of economic life beyond the limits
of industrial concentration. Monopolist combinations may unite a series
of independent producing plants; engage in all stages of production
from raw materials to final manufacturing and marketing; manufac-
ture a series of different products; or combine totally unrelated enter-
prises merely for the profits of financial exploitation and control. An
indication of the rapid growth of giant combinations in the post-war
period is the fact that where in 191 9 there were only seven corpora-
tions with assets of $1,000 million up, combined assets $18,847 million,
in 1931 there were twenty-three, combined assets $43,126 million,^*
one-seventh of all corporate assets. Acceleration was marked. The assets
of the 200 largest non-banking corporations grew from $26,000 million

* Marx, in blasting the "philosophy" of Malthus, who held out to the workers the
inducement that they might rise in the world, said in Theorien ilber den Mehrwert,
V. Ill, pp. 59-60: "The highest hope of the profound thinker, Malthus, which he himself
regards as more or less Utopian, is that the middle class should grow and the proletariat
(which is employed) become a relatively smaller part (even if it grows absolutely) of
the whole population. That is in fact the course of bourgeois society." Part of this is
quoted by Hans Speier, "The Salaried Employee," Social Research, February, 1934,
p. 124, to prove that Marx made "contradictory statements" about the disappearance of
the middle class. There is no contradiction. Marx prophesied the doom of the middle
class of small producers. The doom is fulfilled. Economically, the "class" of small pro-
ducers is now helpless, unimportant in the shadow of the massive power of concentrated
corporate capital; numerically, although they have grown, the small producers have
shrunk to insignificance relatively to the working class. Marx never prophesied the doom
of the elements which make up the "new" middle class; on the contrary, although he
never analyzed the subject fully, because he died after writing only a few pages of his
analysis of classes in Capital, Marx clearly indicates that he foresaw the growth of the
"new" middle class. This is not really a class in the full economic sense, but
an aggregation of diverse groups standing between the workers and the capitalists. Once
the term middle class included the whole bourgeoisie, a class standing between the
masses and the ruling aristocracy; now it includes only the lower bourgeois groups.

Trusts: Concentration and Combination 387

in 1909 to $81,000 million in 1929, an average yearly rate of growth of
5.4%, compared with 3.6% for all other corporations; but from 1924
to 1928 the average yearly rate of growth in the assets of the largest
corporations was 7.7%, compared with only 2.6% for all other corpo-
rations.^" The economic power of monopolist combinations grows faster
than production or corporate wealth in general.

Concentration and combination develop unevenly in the different
fields of industry, but everywhere they tend to be dominant (Table
II), with the tendency for them to become still more dominant.

TABLE II

Centralization of Corporate Control, jg2g

NUMBER OF

NET INCOME

PERCENT OF ALL

INDUSTRY

CORPORATIONS *

(millions)

NET INCOME

Manufactures

627

$3,338

64.0

Mining

65

278

84.6

Public Utilities

230

1,805

86.0

Trade

93

316

27.5

Service

31

108

34-4

Finance

283

1,048

47.7

Total 1,329 $6,893 60.5

•Corporations with net income of $1,000,000 up.

Source: Computed from corporation reports in Bureau of Internal Revenue, Statistics
of Income, 1929. Mining includes quarrying, natural gas, and oil; public utilities in-
cludes transportation and electric power; service includes amusements, hotels, and pro-
fessional services; finance includes banks, insurance companies, brokers, and real estate.

The unevenness reflects the general unevenness of capitalist develop-
ment, a fruitful source of contradictions and antagonisms, expressing
the planless and exploiting character of capitalist production. But
everywhere monopolist combinations, alone or in agreement with
others, wield measurable control over production, markets, and prices.
While this appears clearly enough in the general statistics, it appears
still more clearly in particular fields of industry.

In manufactures 627 giant corporations received 64% of the net
income. In addition, these monopoHst combinations control many other
subsidiary plants directly and indirectly: many "independent" plants
are dependent upon the giants for their markets. Concentration and
combination are most marked in heavy industry, the basis of modern
economic life. Six companies in 1930 controlled 75% of the steel
making capacity, compared with only 58.9% in 1920. United States

388 The Decline of American Capitalism

Steel and Bethlehem Steel alone had assets of over $3,000 million.
What coke plants are not owned or controlled by the iron and steel
companies are in the power o£ the gas utilities, whose control is
centralized in a few monopolist gas and electric holding companies.
Electrical manufacturing is practically a monopoly of three corpora-
tions working in harmony and bound together by the financial power
of the House of Morgan — General Electric, Westinghouse, and Western
Electric, with combined capital stock in 1929 of $506 million, in addition
to stockholdings of I243 million in other electrical manufacturing enter-
prises and power and light companies. Two giants, with assets of over
$2,000 milhon, dominate the automobile industry. In 1930, four com-
panies produced 70% of all rubber tires and a large proportion of other
rubber goods. The Allied Chemical and Dye Corporation, which,
through political manipulations and for a song, acquired the German
patents expropriated during the World War, is the dominant combina-
tion in the chemical industry. The E. I. du Pont de Nemours Company,
with assets of $986 miUion in 1929, produces an extraordinary variety
of chemical products, and has in addition large interests in munitions
and automobiles. Concentration is high in pulp paper manufacture,
with its great masses of fixed capital, and so is combination, the com-
panies owning forests, power plants, and newspapers (to control or-
ders) ; one company in 1929 had assets of $767 million. The Aluminum
Company of America has an almost air-tight international monopoly,
owning bauxite mines and aluminum plants in many countries. Al-
though the monopoly of Standard Oil was lessened, primarily by the
enormous expansion of the industry, renewed concentration and com-
bination has been going on actively. In 1930, seventeen companies had
80% of the operating refinery capacity, 61% being held by seven
companies. The Standard Oil group is still dominant, for it controlled,
in 1926, 73% of the pipeHne transportation facilities and marketed
45% of motor oil. Although the Radio Corporation of America was
"dissolved" in 1932, it still masters the industry; Westinghouse and
General Electric disposed of their Radio stock, to their own stock-
holders, but community of interest is maintained by the Morgans, the
financial overlords of the three corporations. Eight companies, includ-
ing du Pont Rayon and the Viscose Company, control rayon produc-
tion. One company controls agricultural machinery, one company
boot and shoe machinery, three companies aviation products, five
companies over one-fourth of the flour milling output.^^ In every
field of manufactures, heavy and light, a similar condition of monop-
olist domination prevails.

Trusts: Concentration and Combination 389

In mining, 65 great corporations received 84.6% of the net income.
This does not, however, tell the whole story, for the control of strategic
natural resources is a decisive aspect of monopoly capitalism. In 1922,
two companies controlled over half of the iron ore reserves, four com-
panies nearly half the copper reserves, six companies about a third of
the developed water power, eight companies over three-quarters of the
anthracite coal reserves, thirty companies over a third of the immediate
bituminous coal reserves, and thirty companies one-eighth of the petro-
leum reserves. Almost as great was the concentration of production.
In 1929, fourteen iron mining enterprises produced 46% of the output;
fourteen copper companies employed 72.5% of the workers; 118 bitu-
minous coal companies produced 59.8% of the output. This concentra-
tion of power over natural resources was much greater because many
of the separate companies are merely dependents in the system of
centralization of financial control. Concentration has since increased,
moreover; thus, in 1931, a merger of the Phelps Dodge Corporation
and the Arizona Mining Company resulted in the new combination,
with assets of $370 million, becoming the second largest producer of
copper in the United States.^^

The greatest concentration and centraHzation prevail in public utili-
ties, because of three factors: the element of "natural monopoly," the
great masses of fixed capital required, and the tremendous development
of the holding company as a means of centralizing financial control.
In 1929, the telephone trust, the American Telephone and Telegraph
Company, had assets of $2,477 rnillion. Six railroad combinations had
combined assets of $9,546 million. The Van Sweringen system, by
means of a series of holding companies with combined investments
of $519 million, controlled 28,631 miles of railroads, in complete defi-
ance of regulation by the Interstate Commerce Commission and its
plans for unification. In the six years 1923-28, 3,933 electric power
companies merged or were acquired by other companies; the number
of "independent" systems decreased from 125 to twenty-two. The
United Corporation, formed in 1929 by the House of Morgan and
affiliated interests, augmented an already great centralization of finan-
cial control, a combine of combinations; in 1931, with assets in excess
of $600 million. United dominated, by means of stock ownership in
subsidiary holding companies, underlying power properties with assets
of $5,459 million. Before this, in 1925, five combinations controlled
46.9% of the output of electricity, 10.7% by the giant Electric Bond
and Share Company, an affiliate of the General Electric Company.^^
The formation of United Corporation, the subsequent breakdown of

390 The Decline of American Capitalism

the Insull empire, and other developments resulted in a redistribution

and greater centralization of control.

Concentration and centralization appear comparatively small in trade
and service. This is particularly so in service, which is largely personal;
yet even here the trend is av^ay from petty individual enterprise. Hotels
are dominated by chain systems. In 1926, 5,000 out of 20,000 moving
picture theatres w^ere owned or operated by a few large producers and
distributors, and the proportion has since grown. The "free" profes-
sions are increasingly dependent upon corporate enterprise. In 1929,
chain-store systems in retail trade did a combined business of $10,771
million, or 21.5% of the total (compared with probably 5% in 1920);
nearly one-half of the chain business was in the hands of 321 national
chains. The Great Atlantic and Pacific Tea Company, with 15,737
stores, increased its sales from $200 million in 1922 to over fi,ooo
million in 1929. Chain stores have invaded all retail fields; they made
31% of all grocery sales, 27.7% of apparel sales, 30.8% of general
merchandise sales, 19.5% of furniture sales, and 33% of gasoline
station sales. (Gasoline chains are owned mainly by the great oil
companies.) Growth of the chain stores forced independent store-
keepers to fight fire with fire; in 1929, 60,000 independents were or-
ganized in "voluntary chains," with one-third of the independents
doing 65% of the business.^* Even the surviving petty enterprises of
the middle class are becoming "collective"! This concentration and
centralization in trade and service, which were once considered the
final bulwark of petty individual capitaHst enterprise, is of enormous
significance. Developments in management, accounting, and statistical
control have made all types of enterprise capable of large-scale corpo-
rate organization, breaking down former limitations. It is another
objective element of sociaHsm. . . .

Concentration and centralization in finance is even greater than
appears in the fact that 283 financial corporations, only 0.21% of the
total, received 47.7% of the net income. The picture is obscured by
the existence of thousands of petty brokers and "independent" banks,
all, however, dominated by the great financial institutions. In 1932,
six life insurance companies owned 69% of total insurance assets, and
ten more owned another 13%;^^ these giants wield an enormous
financial influence. The large number of small banks (steadily de-
creasing since 1920) seems to indicate the existence of a "democratic"
banking system in comparison with the oligarchic system in other

Trusts: Concentration and Combination 391

highly capitalist countries; but, in fact, American banking is dominated
by the financial oligarchy.*

The control of industry by monopolist combinations is augmented
by the community of interests of intercorporate stockholdings and in-
terlocking directorates. Intercorporate dividends rose from J870 million
in 1923 to $2,593 million in 1929,^^ representing mainly an increase in
stock ownership and influence over corporations by monopolist com-
binations, holding companies, and financial institutions. In some cases
a combination is specifically organized to unify particular interests:
United Corporation was a concentration of the interests of other com-
binations; the Radio Corporation of America, which dominates radio
manufacturing and transmission, represented (until the dissolution) the
patent monopoly and other interests of the General Electric Company,
the Westinghouse Electric and Manufacturing Company, and the
American Telephone and Telegraph Company. And every monopolist
combination is represented on the directorates of other corporations;
this appears from the number of directorships held by the directors
of the following combinations:

United States Steel 174, General Motors 167, Radio Corporation of
America 232, United Corporation 77, General Electric 218, International
Harvester 77, Anaconda Copper 164, American Telephone and Tele-
graph 226, E. I. du Pont de Nemours 96, International Paper and
Power 174, Bethlehem Steel 198, United Fruit 197, Goodrich Rubber
85, Aluminum Company of America 149, Armour and Company 173,
American Smelting and Refining 179, Pennsylvania Railroad 241,
Consolidated Gas 195, Standard Oil Company of New Jersey 41, New
York Central Railroad 306.^''

Some of these interlocking directorships are personal business affilia-
tions, others are directorships in subsidiaries, still others are manifesta-
tions of community of interest; all of them represent centralization of
corporate power. It is partly an expression of economic interdepend-
ence, an objective sociahzation of production; but this progressive
development becomes the basis for the erection of a predatory empire
ruled over by the financial oligarchy.

While the apologists speak of "control" over monopolist combina-
tions, their power is augmented by the NRA, whose program is an
immense cartellization of industry. Where in Europe before the
World War, especially in Germany, government encouraged the

*This subject is discussed more fully in Chapter XXI, "Monopoly and Finance
Capital."

392 The Decline of American Capitalism

formation of cartels but did not participate,* the American govern-
ment under the NRA both encourages and participates actively {e.g.,
RFC loans to industry, government representation on the cartel gov-
erning boards, the code authorities). There are four essential elements
of the cartel: Elimination or modification of competition, the fixing
of prices, restriction of production, and allotment of sales quotas or
trading areas. All these elements appear directly or indirectly, openly or
in disguised form, in most of the codes. The element of restriction of
production is accepted with particular enthusiasm. Listen to a "liberal"
member of the NRA:

"IndustriaHsts will tell you frankly that their aim is to set up codes
under which they can break even when operating plants at 35% of
capacity and make a good profit at 50%. The combination of fixed
prices, controlled production, and the licensing of new machinery
and plants, they feel will bring this about. One industry, which had
been losing money since 1923, was able, through advancing prices, to
make huge profits in 1933. Now this same industry is asking for the
right to license new equipment and otherwise control production.
Another industry, with an amazing profit record in 1933, asks to be
allowed to buy up and scrap the excess plant capacity of the in-
dustry." ^«

The monopoly policy of the NRA is a continuation of previous
developments: of "trust busting" giving place to regulation and of
the relaxation of all anti-trust laws in 1923-29. Both the policy and
the developments express the dominant economic power of trustified
industry, the inevitability of monopoly capitalism. Price-fixing and the
restriction of production must favor the great corporations,! which,
moreover, dominate the codes and the NRA itself. Small businessmen

* European governments now participate. The pre-fascist governments in Germany
took part in the trustification movement, particularly in the formation of the steel trust.
France encourages trustification with legislation and public money. According to the
New York Times, February 9, 1934, the British government is promoting a merger of
North Atlantic shipping interests, the Treasury to provide the new trust up to ;Ci»500,-
000 for working capital and £ 8,000,000 for the construction of giant Uners. The
"organization" of industry by fascist governments is nothing but cartellization or trusti-
fication on an enormous scale, with brutal emphasis on one of the major aspects of
monopolist combination: suppression of the workers.

t Restriction of production in agriculture also favors concentration. "Smaller crops
and fewer farms is the government program in all its ramifications. This will certainly
relieve the small farmer — of his livelihood. To the large plantation owner this program
is more than welcome. He has everything to gain and nothing to lose from a program
which protects the price of his cotton by removing the small farmer from produc-
tion. . . . We find 800,000 families, involving about 5,000,000 men, women, and

Trusts: Concentration and Combination 393

moan and protest, the government speaks o£ "helping" them with
loans, and General Hugh Johnson makes the pledge: "Certainty of
protection against monopoly control and oppression of small enter-
prise."^^ But the philosophy and practice of Niraism, an expression
of monopoly capitalism and its decline, must strengthen the great
combinations. Still the small businessmen moan and protest. They
object most strenuously to minimum wages, for wages are a larger
item of costs among them than among the great enterprises. Accord-
ing to the report of the Advisory Review Board on NRA Codes (the
Darrow board), "codes are developing a monopolist trend and are
doing injury to small industrialists and businessmen." The report was
denounced by the embattled chiefs of the NRA. According to the
Federal Trade Commission, several provisions in the electrical indus-
try code "tend to eliminate and oppress small enterprises, discriminate
against them, and thus promote monopolies." The Commission also
sharply criticized the code for the iron and steel industry: the code
strengthens the monopoHst combinations, it is used to justify prac-
tices prohibited by the Commission as opposed to fair competition,
and it oppresses small enterprises. The code authority, which is com-
posed of the directors of the Iron and Steel Institute, is governed by
plural voting based upon the amount of sales, and is consequently
dominated by two or three large enterprises.^^ Of the oil code, one
observer writes:

"The industry, or so it is contended, will discipline itself. The new
arrangement provides for price-fixing by the industry, or rather by
the dominant major companies, instead of by a public agency. It
encourages centralization of control of the industry in the hands of
relatively few companies. It slights the interests of the consuming pub-
lic and affords no protection to small enterprises. The major companies
can in effect dictate the terms upon which independent gasoline dis-
tributors and others may do business. . . . Nine of the financially
strongest companies have the power of Hfe and death over the pool
which is to 'maintain and support proper relationships of gasoline
prices.' " The code fosters monopoly, declared the small operators and
refiners in a memorial to Congress: "The proration and fixed price
ruling of the code administration makes it possible for the larger
companies to obtain more than their fair share of available petroleum

children, who are in danger of losing their means of existence. It is probable that not
all of these will be actually released. It is certain that a large number of them will be."
Webster Powell and Addison T. Cutler, "Tightening the Cotton Belt," Harpers, Febru-
ary, I934> pp. 315-17.

394 The Decline of American Capitalism

trade." These are also the sentiments o£ small operators in bituminous
coal, in shipping, of small enterprisers in general.^^

The apologists of the NRA, who speak of "social control" over
monopolist combinations, admit in so many words that the forms of
a new social order are clashing with the older social relations of pro-
duction. They say "control" is for purposes of "social justice," of "re-
distributing" wealth, of "increasing" mass purchasing power. That is
mere pretense; the program of state capitalism is to bolster up the old
order, make it more workable; to manipulate the forms of the new
social order to prevent that order from definitely emerging. For, in a
decisive historical sense, monopoly capitalism is no longer capitalism.
It is no longer capitalism where "collective" combinations of capital
dominate industry, where ownership, management, and control are
separated, where the personal rights of property persist in an imper-
sonal system of collective industrial property, where the state, presum-
ably representing society, does not merely use political power to insure
the domination of the ruling class, but intervenes economically to aid
industry, using collective economic resources and action to insure the
rights and income of individual ownership.

Within the objective socialization of production and institutionali-
zation of management there is still private ownership and appropria-
tion, competition and the clash of personal property interests, making
impossible the planful management and regulation of industry. These
contradictory elements are strengthened by the NRA and state capital-
ism, which cling to the older social relations of production. The whole
social-economic situation is one of transition, whose only progressive
outcome is socialism, a revolutionary act liberating production from its
capitalist fetters and making possible a new social order. But state
capitalism tries to "freeze" the transition: it restores neither the older
competitive capitalism, with its free play of economic forces, nor does
it complete the transition toward the new social order. Hence, neither
one thing nor the other, Niraism and state capitalism aggravate all the
contradictions and antagonisms of capitalist production. This means
more instability, transition converted into disintegration. The attempt
to "stabilize" disintegration: that is state capitalism (and, still more,
fascism). And it necessarily is monopoly state capitalism, dominated
by the economic and social weight of monopolist combinations and the
social relations of production out of which their pou/er arises. It is the
strengthening of monopoly and finance capital and their predatory
domination of society.

CHAPTER XXI

Monopoly and Finance Capital

ivJloNOPOLY capitalism has two interlocking aspects: separation of
ownership, management, and control; usurpation of control by the
financial oligarchy. Industrial concentration and the centralization of
financial control increasingly transform the social capital into finance
capital, liquid, intangible, mobile. This capital is mobilized and manip-
ulated by the oligarchy and the financial institutions with which it is
identified, and makes them the masters of industry and society.

Bourgeois economists, particularly those of the "institutional" variety,
recognize the separation of ownership and management. But this
separation is only one aspect of monopoly capitalism; it is, moreover,
involved with profound changes in class structure and class relations.
The class aspect is decisive. The animus of the "institutional" approach
is clear : // "professional" management is an independent category, then
there may be a smooth, gradual, peaceful development toward a "new"
society, meanwhile retaining the fundamental exploiting relations of
capitalism. But management is not an independent category. It is
separated neither from the underlying relations of capitalist produc-
tion nor from the superstructural control of the financial oligarchy.

The good and the bad in the "institutional" approach is evident in
the analysis of the subject by Gardiner C. Means, in The Modern
Corporation and Private Property. After a comprehensive and convinc-
ing demonstration of how monopolist combinations have separated
ownership and management. Means concludes:

"Under the corporate system, control over industrial wealth can be
and is being exercised with a minimum of ownership interest. Con-
ceivably it can be exercised without any such interest. Ownership of
wealth without appreciable control and control of wealth without
appreciable ownership appear to be the logical outcome of corporate
development. This separation of functions forces us to recognize *con-
trol' as something apart from ownership on the one hand and man-
agement on the other." ^

This clear appreciation of control as independent of ownership and
management is offset, however, by an unclear conception of how con-
trol is secured and exercised and by whom. Of the 200 largest non-
395

39^ The Decline of American Capitalism

financial corporations, according to Means, 44% are controlled by
management, 21% by legal devices, 23% by minority ownership, 5%
by majority ownership, and 6% by complete private ownership (1%
were in receivership).^ Here, in a fundamental sense, ownership, either
in its positive or negative aspects, is still made the deciding factor in
control; the problem is considered wholly in corporate terms, not in
terms of larger social and class relations. Who are the private owners }
Only one, Henry Ford, is an active industrial capitalist. One group of
owners are the estates of financial capitalists, with interests in other
corporations. Another group is the Mellon oligarchy, with its owner-
ship of the Aluminum Company of America, the Gulf Oil Corpora-
tion, and the Koppers Company; the Mellons are typical financial
capitalists, whose far-flung interests include the domination of great
banks. Who are the majority owners? One investment banking house;
the estate of the Duke (tobacco) family, with typical widespread
financial interests; one corporation controlled by financial capitalists;
family owners, many of them identified with the financial oligarchy.
Who are the minority owners? Estates of financial capitalists; other
corporations controlling subsidiaries or affiliates; holding companies,
such as the Van Sweringen Allegheny Corporation in railroads and the
Electric Bond and Share Company in public utilities; financial oli-
garchs, the du Fonts and the Rockefellers. What are the legal devices ?
Voting trusts, non-voting stock, and holding companies, typical
methods {particularly the holding company) used by financial capital-
ists to get control of corporations without any substantial investment
of their own; among the combinations thus controlled are the Cities
Service Company and the Morgan United Corporation. Management,
according to Means, controls corporations with "no single important
stock interest." But it is precisely these corporations, where ownership
is most scattered, which come most easily under control of the finan-
cial oligarchs and their banking institutions. Who, in this case, make
up management? Not the mass of managerial employees, but the
officers and directors; most of them are financial capitalists, all of
them are identified, by interlocking interests and directorates, with the
institutional arrangements of financial control dominated by the oli-
garchy. The United States Steel Corporation, since its inception ruled
by the House of Morgan, is considered to be under "management"
control!

Some of the "management" corporations are ruled by particular
oligarchs, others by community of interest among the oligarchs. And
the dominant financial power dominates. For years the elder Morgan

Monopoly and Finance Capital 397

ruled the New York, New Haven and Hartford Railroad (his policy
of combination ruined the property). At an investigation, by the Inter-
state Commerce Commission, of the New Haven's affairs, Joseph Folk
questioned the railroad's president, Charles S. Mellen, about a par-
ticular transaction:

Folk: Why didn't you tell Mr. Morgan: "By what right did you
buy that stock?"

[Outburst of uproarious laughter from the lawyers present, con-
vulsed by the idea of putting such a question to Morgan,^

Mellen [^smilinglyl : Well, it did not seem that that was just
exactly the right way to approach Mr. Morgan.

To cut short discussion and opposition at New Haven board meet-
ings, Morgan would fling his box of matches from him, smash his fist
on the table, and say:

"Call a vote! Let's see where these gentlemen stand." They always
stood where Morgan wanted them to stand. "I do not recall anything,"
said Mellen, "where Mr. Morgan was determined, emphatic, insistent
— I recall no case in which he did not have his way." ^ The only dif-
ference to-day is that the financial dictatorship is not so personal, it
is more oligarchic. . . .

Another aspect, which the "institutional" economists neglect, is that
monopoly and finance capital mark a new stage of capitaUsm. Three
stages may be distinguished in the development of capitalism (its basis
remains unchanged: antagonism between wage labor and capital,
production of surplus value and its conversion into capital) :

1. Commercial capitalism, dominated by merchant or commercial
capitalists, who were interested primarily in buying and selling and
the necessary financial operations. Petty industry was carried on by
craftsmen or small manufacturers, whose output was disposed of by
the merchant capitalists. (Some of the great merchant capitalists, e.g.,
the Fuggers, were identified with mining, the first form of large-scale
capitalist enterprise, which contributed enormously to the technical-
economic development of capitalism.) Unlike its ancestors in the
medieval and ancient world, merchant capital was now bound up
with the growth of a new, the capitalist, mode of production. "The
merchant becomes an industrial capitaHst, or rather, he lets the crafts-
men, particularly the small rural producers, work for him, while the
producer becomes a merchant and produces immediately on a large
scale for commerce." * This was the stage of the commercial revolution.

2. Industrial capitaHsm, dominated by industrial capitalists, who
participated personally in production and whose wealth was augmented

398 The Decline of American Capitalism

by the direct capitalization of surplus value, the reinvestment of profits.
The commercial capitalist, who stimulated the development of the
new mode of production, is thrust aside by the industrial capitalist.
Expansion of the market makes necessary larger output, an enlarged
scale of production, larger masses of fixed capital: production becomes
greater, more organized, and dominant. Commercial capital and com-
merce itself are subordinated to industrial capital. The capitalist is
both exploiter and constructive organizer of industry. Free competition
measurably prevails. This was the stage of the technical-economic
changes of the industrial revolution and their consolidation in the
ensuing years.

3. Monopoly or finance capitalism, dominated by financial capital-
ists. Industry becomes increasingly large scale, requiring constantly
greater masses of capital. Free competition is replaced by monopoly
competition. Capital more and more assumes the money form, serving
as capital only when put to use by other persons (or institutions) than
its owners. Industrial concentration and combination separate owner-
ship, management, and control. Management becomes an institutional
function of employees. There is an immense socialization of industry,
the objective basis of a new social order; but control is usurped by
financial capitaHsts and the banks under their mastery. Owners be-
come absentees, rentiers in one form or another, who merely receive
the income of ownership. The capitalist is now a mere exploiter, as
the organization and management of industry is an employee function.
Except for the unimportant small producers who still survive, the
industrial capitalist is no more. In the United States, where monopoly
capitalism is most highly developed, the only important industrial
capitaUst is Henry Ford, who, however, has acquired considerable
financial interests and in 1930 "bought into" the National City Bank.^
(The Fords will either become financial capitalists or eventually lose
control of their enterprise.) * Both the commercial and industrial
capitalists operated primarily with their own money; financial capital-
ists operate and secure control primarily with other people's money.
The financial oligarchy, speculative, adventurous, wholly parasitic,
dominates the capitalist class. This is the stage of the decline of
capitalism.

* Andre Citroen, the Henry Ford of France (with, however, more general interests),
was overwhelmed by financial troubles engendered by the depression. After slashing
wages and juggling with the social insurance funds of his employees, Citroen was forced
to beg aid of the banks, whose reorganization of the automobile company took control
away from him. New York Times, March 4, 1934.

Monopoly and Finance Capital 399

The three stages overlap, elements of one appear or persist in the
other, yet they are distinct, and the differences are of immense histor-
ical importance. Commercial and industrial capitalism were identified
with the emergence and upswing of capitalist production, the progres-
sive transformation of industry, performing the historical task of
developing the objective forms of a new, the socialist, order. Monopoly
capitalism is identified with decline, and with capitalist manipulation
of the forms of a new social order to maintain the old — a manipulation
whose only result, until the revolutionary intervention of the working
class, must be social-economic decline and decay. . . .

The growth of industrial capitalism and its transformadon into
monopoly capitalism were accompanied by the growing magnitude
and importance of money capital, which is separated from the function
of capital itself. There is both an increase in the capital needs of large-
scale industry and in the social wealth, which increasingly assumes the
form of money capital. This capital is concentrated in the banks. Its
sources are the funds of money capitalists and of industrial or com-
mercial enterprises and the scattered savings of all classes of society.
The bank's money capital is enormously augmented by credit, which
is of constandy greater importance in capitalist production. (Credit,
whether based on savings or not, is a command over social labor; it
reveals clearly that appropriation of surplus value, of unpaid labor, is
the source of profit, for credit represents neither the "saved" capital
of the capitalist nor, much of it, the savings of anybody, but merely
command over labor. At the same time, credit becomes the basis of
speculation, fraud, intensified competition, and overproduction, creat-
ing disturbances and maladjustments.* The social nature of credit is,
however, one form of the objective transition toward a new mode of
production, toward socialism.) Industry becomes constantly more
dependent upon the money capital under control of the banks.

Industrial capital itself increasingly assumes the form of money
capital. Industrial capital is bound up with the person of the industrial

* Credit outstrips savings; this is necessarily a disturbing factor, as it encourages an
unbalanced output of capital goods. But limiting credit to savings would solve no prob-
lems. For then the output of capital goods would be smaller, restricting employment and
prosperity. And if new capital were based only on savings, there would still be malad-
justments and disturbances, because the capital must yield profit, a deficiency in con-
sumption would be created, and planlessness, competition, and speculation would still
prevail: inevitably, for the final source of all maladjustments and disturbances is the capi-
talist drive for surplus value and its realization as profit and capital. Hence government
"control" of banking and credit merely alters the forms and combinations of maladjust-
ments and disturbances.

400 The Decline of American Capitalism

capitalist. But he is now replaced by stockholders, non-participating
absentees, whose dividends are not essentially different from interest,
except that they are more subject to fluctuations. (Even these fluctua-
tions are considerably "smoothed" by the policy of corporations to pile
up surplus and pay dividends when there are small or no profits.) In-
dustrial capital in the form of stockholdings is almost as mobile as
money capital: it moves from industry to industry and enterprise to
enterprise; this is particularly true of the stockholdings of great finan-
cial capitalists, whose inside information tells them where the profits
— and losses — are. There is a fusion of industrial and money capital;
the forms merge into one form, finance capital, which is mobilized
by the banks and the financial oligarchy.''^

Banking is transformed. Originally the primary function of banks
was to make payments, to supply industry with the "commercial"
capital to finance the distribution of goods (whence the name com-
mercial banks). This type of bank was dominant when industry was
small-scale and the merchant capitalist was the chief entrepreneurial
factor. But even the earliest commercial banks carried on some invest-
ment operations, and during the nineteenth century these operations
grew with the growth of large-scale industry and its fixed-capital needs.
In England, direct investment banking tended to become a specialized
function; on the Continent, however, commercial and investment
banking was combined in the same institution. American investment
banking arose in the i83o's-5o's out of the import of capital, mainly to
finance the construction of canals and railroads. As industrialism de-
veloped, the commercial banks, at first exclusively limited to mercantile
operations, began to supply industry's growing needs for fixed capital.
In the i88o's arose the trust company, whose phenomenal expansion
paralleled that of corporate enterprise. The trust company combined
commercial and investment banking with ordinary trust functions; it

* "With the development of large-scale industry money [financial] capital, so far as
it appears on the market, is not represented by some individual capitalist, not by the
owner of this or that fraction of the capital on the market, but assumes more and more
the character of an organized mass, which is far more subject to the control of the
representatives of social capital, the bankers, than actual production is." Karl Marx,
Capital, v. Ill, p, 433. "In proportion as banking develops and becomes concentrated in
a small number of institutions, the banks grow from modest intermediaries into all-
powerful monopolists having at their command almost all the money capital of all the
capitalists and small businessmen, as well as the greater part of the means of production
of a given country or in a number of countries. ... A handful of monopolists controls
all the operations, both commercial and financial, of capitalist society, . . . This trans-
formation is one of the fundamental processes of the growing of capitalism into capitalist
imperialism." V. I. Lenin, Imperialism, the Highest Stage of Capitalism, pp. 30, 34.

Monopoly and Finance Capital 401

acted as fiscal agents for corporations and performed other services for
them. (By acting as investment expert for non-active investors in
corporations the trust company emphasized the separation of owner-
ship and management and the growth of parasitism.) After the 1890's,
the commercial banks engaged more and more extensively in invest-
ment operations, led by the National City Bank, under control of the
Rockefellers. Private investment bankers, particularly the Morgans,
did some commercial banking business and acquired control of com-
mercial banks on a large scale to facilitate their underwriting opera-
tions. And all the great banks, commercial, investment, or trust, ac-
quired control of insurance companies in order to manipulate their
vast resources, which were mercilessly exploited and plundered. This
process was accelerated after the World War. Whatever the theoretical
or primary function of the commercial bank or trust company may be,
their major operations are in fact of an investment banking character:
indirectly, by investment in corporate securities, loans for fixed-capital
purposes, and loans on new issues not yet absorbed by the investment
market; directly, by the operations of security affiliates which engage
in all sorts of investment banking. While the Banking Act of 1933
compels commercial banks to separate from their security affiliates,
the stock of affiliates is sold to the banks' stockholders; interlocking
directorates are prohibited, but community of interest is maintained.
Moreover, the separation does not affect the indirect investment opera-
tions of commercial banks.

This integration of function is paralleled by concentration and
combination. Banks have grown in size by concentration, by reinvest-
ment of profits, and inner expansion of business. They have also grown
by combination, by absorbing other banks or merging with them.
Industrial monopoly is accompanied by banking monopoly. By 1912,
thirty-four banks had one-eighth of total banking resources under their
control. Concentration and combination were enormously augmented
in the post-war period. An unprecedented number of failures and
mergers reduced the number of banks from 30,812 in 1921 to 24,079
in 1930; in the following year another 2,000 disappeared. The large
number of banks still seems to indicate existence of a "democratic"
banking system in comparison with other highly developed capitalist
countries, in Canada, Britain, Germany, Italy, and France, where a
handful of monopolist banks control banking and industry itself (in
Europe, the banks, by command of credit, participation in com-
binations, and interlocking directorates, institutionalize the centraliza-
tion of financial control over industry). But of the 24,079 banks.

402 The Decline of American Capitalism

20,000 were in small towns and had an average capital of only $40,000.
In 1930, sixty-nine banks had resources of $25,900 million, and another
seventy-one banks had resources o£ $5,100 million; these 140 banks,
only 0.58% of the total, had 48.9% of total banking resources (exclud-
ing savings banks). Five of the giants — including Chase National,
Guaranty Trust, and National City — had resources o£ $9,073 million,
14.3% of commercial banking resources: a concentration probably six
times as great as in 1912. Many "independent" banks, moreover, are
members of chain systems; in 1929, 273 chains, organized by means of
the holding company device (requiring a minimum of investment)
controlled 1,858 banks with resources of $13,000 million. There was
concentration within the chains: twenty-eight of them were in control
of $5,538 million in resources, nearly one-half of the chain total. Final
centralization of control was still greater. Chains are interlocked with
the financial oligarchy. So are the giant banks. In 1929, three Morgan
banks, Bankers Trust, Guaranty Trust, and First National, and the
National City and Chase National had control or influence, by means
of stock ownership and interlocking directorates,* over other banks
with resources of nearly $20,000 million, almost one-third of total com-
mercial banking resources. In addition, the five monopolist banks were
interlocked with insurance companies with assets of $12,500 million,
three-fifths of the assets of all life and fire insurance companies.*

These monopolist combinations of banking capital, with enormous
control over the money capital of society, are no longer mere inter-
mediaries serving industry, they are the masters of industry. The mas-
tery is strengthened by industrial combination, with its separation of
ownership, management, and control. Monopolist banks become the
dominant force in the centralization of financial control over industry,
by the command of credit, the operations of security affiliates, and the
interlocking of directorates. This appears clearly from the number of
interlocking directorships held by banks in other financial, industrial,
and utility corporations. Fifteen New York City banks held 1,762 such
directorships in 1899, and 5,324 in 1931. In 1929, the three Morgan
banks. Bankers Trust, Guaranty Trust, and First National held direc-
torships in public utility companies with assets of $8,000 million. (In
addition, J. P. Morgan and Company were in direct control of United

* The "money trust" investigation of 191 2 led to the Clayton Act's prohibition of
interlocking directorates among banks, and particularly forbade private investment
bankers to hold directorships in commercial banks. These prohibitions were generally
disregarded, and later officially became a dead letter. A similar fate awaits the 1933
prohibition of commercial banks owning security affiliates.

Monopoly and Finance Capital 403

Corporation, dominant holding company of underlying power com-
panies with $5,000 million in assets.) After its merger with the Harris
Forbes Corporation in 1930, the Chase Security Corporation, affiliate
of the Chase National Bank, held directorships (as well as owned stock)
in utility companies with assets of $5,105 million. Some or all of the five
banking institutions held directorships in General Electric, Westing-
house, Radio Corporation, and American Telephone and Telegraph,
which in turn had their own directors in most of the power companies.
This is a tremendous unification of control over electrical manufactur-
ing, the power and light industry, and electrical communications.
The system is widespread. Thus, in 1930, the Irving Trust Company of
New York held 346 interlocking directorships in other corporations,
the First National Bank of Boston 754, the Mellon National Bank of
Pittsburgh 179, the Philadelphia National Bank 348, the Continental
Illinois Bank and Trust Company of Chicago 368, and the Union Trust
Company of Cleveland 278.'^ The Morgan oligarchy and its allies
represent the greatest centralization of financial control, as appears
from their 1929 interlocking directorships:

J. P. Morgan and Company held directorships in industrial, utility,
and financial corporations with assets of $20,000 million.

The Morgan banks. Bankers Trust, Guaranty Trust, and First Na-
tional held directorships in corporations with assets (less duplication)
of $52,000 million.

The Morgan allies. Chase National and National City, held direc-
torships in corporations with assets (less duplication) of $45,000 million.

The Morgan-Chase-City oligarchy, composed of 167 individuals, held
over 2,450 interlocking directorships in corporations with assets (less
duplication) of $74,000 million, 22% of total corporate assets.®

This enormous centralization of financial control, infinitely greater
than that revealed in 1912 by the "money trust" investigation, is an
institutional mechanism; it operates through the banks, which are the
fly-wheel of capitalist enterprise. Control of the mechanism is usurped
by the financial oligarchy. There are the Morgans. And the du Ponts,
who have far-flung industrial interests, and control, among other banks,
the Irving Trust and Chemical National of New York. The Rockefel-
lers, with personal wealth estimated in 1929 at from $500 million to
$1,000 million, merge industrial and financial control; long dominant
in the National City Bank, they shifted in 1929-30 to the enlarged
Chase National Bank. The Mellons own two banks with resources
of $488 million, direct interests in corporations with assets of $9,718
million, and interlocking directorships in scores of other corporatons.®

404 The Decline of American Capitalism

A handful of financial oligarchs control the monopolist combinations
of industrial and banking capital, the most decisive portions of social
capital; they control, in one concentrated institutional mass, the use
of savings and credit, the mobilization of investment capital, and the
great corporations in v^hich most of the capital is invested. It is the
dictatorship of finance capital.

The basis of the dictatorship of finance capital is the constructive
socialization of production and the "social bookkeeping" performed by
banks, the "organization" of capitaHsm. But this "organization" is
entangled with all the social relations of capitalist production; it
necessarily develops into contradictory and antagonistic forms. The
financial oligarchy exploits the socialization of production and the
"bookkeeping" of the banks for its own purposes. The constructive
developments of capitalism are converted into their predatory opposites,
provide new means for exploiting the producers, the workers and
farmers. Monopolist combinations intensify the exploitation of labor,
maintain high prices, and crush the farmers by subordinating agricul-
ture to industry (instead of merging them in a new social-economic
synthesis). Banks encourage overexpansion, speculation, and risky
enterprises, convert their constructive "bookkeeping" function into a
source of maladjustments. Financial capitalists move from enterprise
to enterprise, industry to industry, and country to country, seeking
and extorting higher profits. All this is both result and negation of the
constructive achievements out of which arises the predatory dictator-
ship of finance capital. Marx clearly foresaw the development, although
it was merely emergent in his day :

"This is the abolition of the capitalist mode of production within
capitalist production itself, a self-destructive contradiction, which
represents on its face a mere phase of transition to a new form of pro-
duction. It manifests its contradictory nature by its efifects. It establishes
a monopoly in certain spheres and thereby challenges the interference
of the state. It reproduces a new aristocracy of finance, a new sort of
parasites in the shape of promoters, speculators, and merely nominal
directors; a whole system of swindling and cheating by means of
corporation juggling, stock jobbing, and stock speculation. It is private
production without the control of private property." ^^

Monopoly and finance capital multiply the contradictions and antag-
onisms of capitalist production. More thorough organization of in-
dustry is accompanied by more competition and disturbances. The
primary purpose of monopoly is to suppress competition, to control
prices and markets. Competition is suppressed, but only partly, tem-

Monopoly and Finance Capital 405

porarily. It does not disappear, but assumes higher and aggravated
forms.*

The most effective form of price control, short of complete monopoly,
is the cartel. "But such control," one bourgeois economist admits, "is
scarcely ever fully achieved. Even the most closely organized syndicate
must leave a marginal field where competition prevails; this marginal
competition delimits the area dominated by the syndicate and aflFects
its policy. In the majority of cases the cartels cannot go beyond a rather
slight mitigation of the competitive struggle. And yet a price war
and the grievous losses which it entails in industries with large fixed
capital investments can be avoided only by combination. Karl Marx
was right beyond doubt in insisting that a tendency toward monopoly
is inherent in modern technology. All loosely organized cartels are the
forerunners of more rigid forms of combination." ^^

Monopolist combinations seldom exercise complete monopoly. The
gigantic United States Steel Corporation controls only 40% of the
industry; competition flares up periodically, although four monopolist
combinations are dominant. Competition is particularly effective in
the case of smaller concerns using the newest and most efficient equip-
ment: a higher rate of profit is "earned." General Motors and the Ford
Motor Company dominate the automobile industry, yet they wage
ruthless war upon each other, and competition is aggravated by the
sniping of independents. Ford once had a monopoly of the low-price
field, but competition forced his 50% share of the total market down to
20% in 1932; some of the business went to independents, General
Motors got most of it.^^ In addition to waging war on Ford, General
Motors organized an aviation subsidiary and "cashed in" on the profits
of newer enterprises and competition. In spite of its dominant monop-

* "As capitalist production develops, the minimal size of the individual capital growls;
the size that is requisite to carry on business under normal conditions. The lesser
capitalists, therefore, crowd into spheres of production w^hich large-scale industry has
not yet fully annexed. In these fields competition rages in direct proportion to the
magnitude of the competing capitals." Marx, Capital, v. I, p. 691. "When monopoly
appears in certain branches of production it increases and intensifies the chaos proper to
capitalist production as a whole. . . . Monopolies, which have sprung from free com-
petition, do not eliminate it, but exist alongside of it and over it, thereby giving rise to
a number of very acute and bitter antagonisms, points of friction, and conflicts. Monop-
oly is the transition from capitalism to a higher order." Leniji, Imperialism, p. 80.
"When a certain branch of industry is monopolized, competition with outsiders and
rival cartels and trusts at home does not cease, and a struggle for shares in production
and sales goes on within the cartel. It is safe to say that as there is no competition with-
out monopolies, so there is no monopoly without competition." R. Piotrowski, Cartels
and Trusts (1933). P- 365*

4o6 The Decline of American Capitalism

olist position, the Radio Corporation of America must share part of the
market with independents, and competition is intense. The Standard
Oil monopoly did not endure; in spite of renewed concentration and
combination, many savage competitive battles have been waged in
recent years. Not even a complete monopoly like the Aluminum
Company of America is immune. When Andrew Mellon was secretary
of the Treasury, efforts were made to produce alunite aluminum,
which might have broken the Aluminum Company's monopoly of
bauxite. While "Mellon succeeded, by devious means, in completely
throtthng alunite competition," the threat may revive.^^ It is rarely
possible to monopolize a whole industry; all the combinations can
do is dominate by strategic strength and agreements. The resulting
control of competition, markets, and prices is unstable. For it depends
upon conditions which are frequently upset by inner contradictions
and antagonisms, by the tendency of the rate of profit to fall. Then
competition breaks out savagely and agreements become scraps of
paper. Combinations now use the same tricks against each other that
they use against independents: denial of supplies, price cutting, and
banking pressure, all means to get a larger share of the market and
higher profits.

To overcome these limitations of monopolist combinations, the
financial oligarchy develops community of interest among them by
interlocking directorates and the centralization of financial control.
This is only partly successful. A particular combination must show
profits, by aggressive competition if necessary: the rate of profit is an
inexorable driving force. When bankers reorganize a company (bank-
ruptcy does not force large concerns out of business, because of their
great masses of fixed capital) they undersell competitors: by scaling
down capital claims, the reorganized company's competitive strength
is invigorated. Financial oligarchs, moreover, while they cooperate, are
split up into rival groups. In 1931, the Morgans and Rockefellers inter-
locked some of their utility interests: the Standard Oil Company of
New Jersey acquired a 30% interest in the gas-pipe lines of the Co-
lumbia system, dominated by United Corporation. Yet two years later,
the Chairman of the Chase National Bank, both the bank and himself
parts of the Rockefeller oligarchy, urged bank reforms which struck
directly at the Morgans. (When }. P. Morgan and Company "crack
the whip too much,'' according to one commentator, there is a little
revolt.)^* The oligarchs encourage competition, if it means the possi-
bility of higher profits, and the formation of new enterprises in fields
where monopoly profits are inviting. This is stimulated by the ad-

Monopoly and Finance Capital 407

venturous and speculative character of finance capital the super-
abundance and surplus o£ available capital, the tendency of the rate
of profit to fall, and the fact that new enterprises may have the ad-
vantage of higher technical-economic efficiency and lower overhead
costs. Monopolist combinations only relatively and temporarily suppress
competition; there may be comparative peace for considerable periods,
but eventually competition flares up in the destructive battles of giants.

While 1,300 monopolist combinations dominate American industry,
there are 475,000 other corporations in control of roughly 40% of in-
dustry. Among them competition rages continuously and furiously.
The competition is aggravated by the prevalence of monopolist com-
binations. They exploit small-scale industry by forcing it to pay high
prices for supplies or by invading its markets. Monopoly Umits in-
vestment opportunities in the fields it dominates; in any event, invest-
ment is open only to large capitals. This forces large masses of capital
into non-monopolist fields of enterprise. Monopoly capitalism is ac-
companied by accelerated accumulation of relatively surplus capital,
pressing for profitable investment; this capital flows particularly into
new industries or into fields not yet dominated by monopolist com-
binations, and there intensifies competition. In 1919, only thirty pro-
ducers were in the radio field; in the two years 1921-22, 5,000 new
producers went into business, most of them being wiped out in a few
years.^^ The drive to capture markets by enlarging output and lower-
ing costs led to a condition of acute excess capacity: in 1929, one pro-
ducer could have supplied the whole market demand. In order to
survive, smaller concerns increase their capacity, made possible by the
superabundance of capital; the inevitable increase in excess capacity
sharpens competition, a competition made all the more destructive by
the greater size of the concerns involved. The upflare of the "new
competition" in 1923-29 was coincident with an unusually rapid
growth of concentration and combination.

The advantages of large-scale enterprise are obvious : higher produc-
tivity of labor, standardization, elimination of waste and production of
by-products, large financial resources, organized research, planning for
long-time expansion, control of markets and prices, reduction of
fluctuations in profits. But there are many serious disadvantages. The
superiority of large-scale production itself is neither progressive nor
absolute; beyond a certain point mere size becomes inefficient and un-
profitable, unless offset by monopoly prices. But monopoly means com-
bination beyond the limits of industrial concentration, and this tends
to aggravate inefficiency. Since monopolist combinations are under the

4o8 The Decline of American Capitalism

control of finance capital, which is interested in the production (and
concentration) of financial profits, not in the production of goods,
combinations tend to exceed the most efficient size. In some cases the
disadvantages are overcome by the holding company device, w^hich
decentralizes plant and local administration while centralizing finan-
cial control. Resulting gains in efficiency are offset by competition and
predatory monopoly practices, particularly the overcapitalization of
combinations, which tends to produce a fictitious but still disastrous fall
in the rate of profit. In other cases, moreover, the holding company
"unites" a hodge-podge of enterprises wholly regardless of efficiency,
merely to secure promoters' profits, strive toward monopoly, or insure
financial control. The disadvantages of large-scale enterprise invite
and make possible, within limits, the frequently successful competition
of smaller concerns — small, however, only in relation to the giant
combinations. Recent technological changes {e.g,, electric power,
higher productivity based on qualitative rather than quantitative ele-
ments in machinery) provide the means for smaller concerns to realize
many of the advantages of large-scale production with lower overhead
costs and a higher rate of profit; in addition, they are more flexible,
more adaptable to market changes, and they can increase their size
where necessary because of the superabundance of capital. The larger
concerns redouble their efforts to get "a bigger slice of the consumer's
dollar" by forcing the sale of old products or adding new products to
their output. Alongside of these contradictions and antagonisms, com-
petition is again aggravated by the growth of production for variety
demands and markets. Finally, competition, itself aggravated by excess
capacity, reacts and increases excess capacity; since markets are re-
stricted by the restriction of mass consumption, competition becomes
worse. The rate of profit moves downward. Desperately, capitalist
enterprise tries all sorts of devices to limit production and competition
in order to raise prices and profits. Trade associations and trade in-
stitutes tried to do legally what the anti-trust laws forbade, but they
were not very successful. One of the main objectives of state capitalism,
especially as expressed in the NRA, is the attempt to realize the
primary aim of monopoly : to secure a higher, or at least a more stable,
rate of profit, by means of restriction of production, limitation of
competition, higher prices, and higher profits.

The NRA promotes both concentration and combination and the
cartellization of industry. But competition is not eliminated, it is
merely transformed. It crops up in the most unexpected manner. Thus,
before the NRA codes, rayon competed with cotton textiles on a style

Monopoly and Finance Capital 409

basis; minimum wages raised the costs of one more than the other,
because cotton manufacturing needs more labor than rayon, making
it possible for rayon to compete with cotton on the basis of style and
price/^ The NRA tends to inflame the "new competition" which was
so disastrous in 1923—29, while simultaneously making it more difficult
for the smaller producers to survive. This aspect of the situation has
been thus described by the financial expert of the New York Herald
Tribune.

"The NRA cartel idea may finally nullify itself because the cartelliza-
tion of all industries merely serves to bring each industry into more
direct competition with others in the effort to capture increasing por-
tions of the national income. It cannot be stressed too emphatically
that competition will remain just as strong under the NRA as before.
It will merely take another form, and instead of being between units
of an industry it will be between whole industries. With mercantile
groups organized, manufacturers will meet organized resistance in any
effort to advance prices at the expense of wholesale and retail outlets.
Producers of basic materials will meet the same sort of resistance from
manufacturers. Gains in income can only be made in other direc-
tions." ^'

This competition of industry against industry becomes all the
greater under the conditions of capitalist decline, of mass unemploy-
ment, restricted markets, and lower profits. Nor will it be limited to
industry against industry: competition will also flourish within an
industry, in different but more savage forms, stimulating concentration
and combination.

What happens to competition under monopoly capitalism is this:
competition is transformed, assumes higher forms. It is no longer
primarily the competition of small individual capitals, but of combined
million-capitals. The area of competition is restricted, its intensity and
destructive character sharpened. The capitalism of free competition,
whose economic and class characteristics were petty individual enter-
prise and a comparatively independent class of small producers, was
"free" only within the charmed circle of the possessors of capital and
was limited by the unequal distribution and sizes of the competing
capitals. Monopoly capitalism, whose economic and class characteristics
are large-scale corporate enterprise, the decline of small capitalists, and
the rule of finance capital, limits competition only by making it im-
possible for small capitals to arise and compete independently except
in unimportant fields, and by limiting (but not eliminating) competi-

410 The Decline of American Capitalism

tion among the larger enterprises. There never was any "pure" free
competition; there is no "pure" monopoly.

Monopoly capitalism practically destroys the economic significance
of the old middle class o£ small producers (and small merchants).'*^
This destroys the material conditions underlying the petty-bourgeois
ideals of economic individualism. "The field of operations for the
independent owner-manager," according to an engineer economist,
"will be steadily restricted ... he will continue throughout to be a
subordinate worker in a large corporate organization." ^* Ideals may
persist beyond their economic basis, and the petty-bourgeois ideal of
economic individualism still survives; but it is now merely an ideolog-

* It is frequently argued that industrial concentration and monopoly create an eco-
nomic crisis by destroying the small producers, the most important section of the middle
class market. Until recently, however, this market tended to expand, not contract. Not
all small producers defeated in the battle of competition were proletarianized, that is,
deprived of all property and forced to become wage-workers. Some sold out to the
larger enterprises and went into other businesses or retired, while others became execu-
tive or managerial employees in corporations. The expansion of industry, moreover,
permitted new batches of small capitalists to arise. At the same time the middle class
market grew because of growth among its other elements: technical, supervisory, and
managerial employees in corporate industry, storekeepers, and professionals (not to
mention the multiplication of parasitic occupations). Thus the "new" middle class, i.e.,
all groups, exclusive of farmers, between the workers and the upper bourgeoisie, con-
stituted a constantly greater part of the market, scoring, particularly in 1923-29, rela-
tively much larger gains than the working class. That was, however, in the epoch of
the upswing of capitalism; in the epoch of decline the situation is materially different.
With the curve of production moving downward, defeated small producers are much
more likely to be proletarianized, while the chances of new producers arising are slight:
they now decrease in numbers as well as in economic significance. But the small pro-
ducers are not the most important section of the middle class market, which shrinks
primarily because the working class market shrinks, although not necessarily in the
same proportion. The working class market shrinks because of disemployment and lower
wages. Disemployment means a decrease in the production and realization of surplus
value. Lower production throws many technical, supervisory, and managerial
employees out of work. Disemployment and lower wages affect adversely the business of
small storekeepers, whose customers are mainly workers. A serious fall in income and
restriction of opportunity occur among that considerable part of professionals who
answer calls for services from the workers. The economic crisis lessens school and college
appropriations, resulting in widespread unemployment and salary cuts among teachers.
Most of the members, the lower incomes, of the functional groups in the middle class
are dependent upon prosperity among the workers: there is an economic identity of
interest, not antagonism. (That is why the promise of fascism to improve, at the expense
of the workers, the conditions of the middle class can benefit only small groups: condi-
tions among the class as a whole must become worse.) Shrinkage in the middle class
market is not produced directly by destruction of small capitalists; it is produced indi-
rectly and primarily by capitalist decline and shrinkage of the working class market.

Monopoly and Finance Capital 411

ical lag protecting the predatory financial capitalists, who suppress
economic individualism and free competition and increasingly exploit
labor. . . .

Monopoly can never be complete because monopoly is profitable
only if it is limited. "The monopoly price of certain commodities," said
Marx, "merely transfers a portion of the profit of the other producers
of commodities to the commodities v^ith a monopoly price. . . . They
leave the boundaries of surplus value itself untouched. If a commodity
vi^ith a monopoly price should enter into the necessary consumption
of the w^orker, it would ... be paid by a deduction from the real
wages (that is, from the quantity of use values received by the worker
for the same quantity of labor) and from the profits of other capital-
ists."^^ The limits of monopoly are thus described by a bourgeois
economist of to-day:

"In a capitalist system monopolist industries reap their profits as
parasites on free industries, i.e., on industries that are not given to
trustification or organization in cartels or syndicates. . . . Only such
proportion of the monopoly profits can be ploughed back as will
enable the monopolist to retain his maximum differential in his
privileged field; investment of monopoly profits must take place in
free industries." ^°

In addition, monopolist combinations exploit "free" industries (only
relatively free, in process of development toward concentration, hence
absorbing an increasing amount of capital goods) by means of
monopoly prices. The exploitation is direct if the monopoHst combina-
tions sell supplies to the "free" industries. It is indirect if the monopoly
prices are for consumption goods, for that limits the demand for non-
monopoly goods. Thus complete monopoly would nullify itself, ma\e
impossible monopoly prices and profits. This is one reason why
monopolist combinations are active in the export of capital and im-
perialism, for in economically undeveloped countries the "free" indus-
tries are still numerous. The Hmits of monopoly appear also from the
fact that monopoly profits may be reaped at the expense of other
monopolist combinations. The General Motors rate of profit rose from
about 13% in 1922 to 31% in 1926-27, while the Ford rate fell from
about 30% to a deficit; the du Pont rate of profit rose from about 5%
in 1922 to 16% in 1927, while the rate of other large chemical com-
panies was below that of 1920; the rate of profit of Goodyear Rubber
and Tire rose considerably from 1922 to 1929, while the rate of Gen-
eral Tire and Rubber fell disastrously.^^ The masters of capitalist in-
dustry must prey upon one another. Hence the intensification of

412 The Decline of American Capitalism

competition, the aggravation of maladjustments and disturbances by
monopoly capitalism.

The limits of monopoly and the general conditions of decline which
it expresses enormously increase the importance of financial and
speculative profits in the capitalist economy (Table III). In 1923-29,

TABLE III

Distribution of Financial, Non-Financial, and Speculative Profits,

192^-29

FINANCIAL CORPORATIONS

OTHER CORPORATIONS

SPECULATIVE PROFITS

AMOUNT

AMOUNT

AMOUNT

YEAR

(millions)

INDEX

(millions)

INDEX

(millions)

INDEX

1923

$879

lOO.O

$4,948

lOO.O

$1,172

lOO.O

1924

1,061

120.7

3,927

79.3

1,513

129.2

1925

1,610

183.2

5,361

108.4

2,932

250.6

1926

1,459

166.0

5,315

107.4

2,378

203.2

1927

1,687

I9I.9

4,193

84-7

2,894

247.4

1928

2,444

278.0

5,192

104.9

4,807

410.8

1929

2,438

277-3

5,645

114. 1

4,684

400.3

Source:

: Computed from

! corporation

I and personal income reports

J in Bureau of Internal

Revenue,

Statistics of Income for the

respective years.

while the profits of non-financial corporations were almost stationary,
the profits of financial corporations were 177.3% higher in 1929
than in 1923, and speculative profits 300.3% higher. It is because
of these conditions that the financial oligarchs use other people's money
to speculate, to promote, to get control of combinations. One little
method of making money used by the Morgans and the Insulls was to
sell the stock of newly formed combinations to "friends" (political
and financial) below the offering price: in one case, $12 while the
public paid $27,^^ which yields an automatic profit of large dimensions.
That is why the holding company * is so beloved of the oligarchs. For
the holding company, used to concentrate control of banks and in-
dustrial corporations, needs only a small investment to secure domin-
ion over vast properties. This is done by piling holding company
upon holding company; one, a utility holding company is eleven
times removed from the underlying properties it dominates, whose

* The holding company, of course, by massing industrial and financial power, is a
tremendous weapon against labor. This is seldom, if ever mentioned), by American
writers. They are more outspoken in England: "Do not big holding company organiza-
tions represent the means by which employers are going to provide a unified opposition
to the more extravagant demands of labor?" A. J. Simons, Holding Companies (1927),
p. 12.

•J CONTROL OF

\jNDOsrRy

MOO ^

37 5"

350 _

ZX5

300

J75-

2S0

XXS

ZOO

115

I50

\X5

/OO

IS

SPECULATIVE

n PROFITS n

NON- FINANCIAL
PROFITS

IS23 »*12<f \^Z5 iSife IU7 l*U«

\<\2F{

XVII. THE DYNAMICS OF FINANCE CAPITAL.

414 The Decline of American Capitalism

assets of $1,200 million are controlled by an investment of $8,000,000.
The holding company, in addition to other profits, makes its gains by
extortionate service charges; the profit of one company from such
charges ranged from 157% to 269%, while another company v^as dis-
allowed "supervisory fees" of $500,000 by the Federal Power Com-
mission.^^ Sweet are the uses of monopoly control!

Increasing monopoly, under the conditions of capitalist decline, is
accompanied by mass disemployment, lower production and realiza-
tion of surplus value, a downward movement in the accumulation of
capital. Larger profits now depend upon two factors: an immense
lowering of mass standards of living and a more systematic plunder-
ing of one capitalist group by another. The struggle for a larger
share of a diminishing mass of profits definitely affects the policy of
state capitalism and, especially, fascism. For while fascism protects
the system of private property as a whole, its origins and state policy
(notably in Germany) are identified with the struggle for more profits
and power of particular groups of capitaHsts, who use state power,
including murder, to overcome their rivals.

Monopoly is the form of expression of the "organization" of capital-
ism. This "organization" assumes the same contradictory and antago-
nistic forms and has the same limits as monopoly itself. Yet the old
revisionist socialists, led by Eduard Bernstein, insisted that capitaHsm
was being "organized," imposing controls on cyclical fluctuations,
modifying if not abolishing the class struggle. But "organized capital-
ism," which was monopoly capitalism and imperialism, led inexorably
to the catastrophe of the World War. In the post-war period the theory
was revived by another German socialist, Rudolf Hilferding; he argued
that finance capital "means the transition from the capitalism of free
competition to organized capitalism," with a "diminishing" of the
instability of capitalist producton, "milder crises, at least in their effects
on the workers," and "less threatening" unemployment.^* The answer
was an increase in unemployment, in the surplus population, an
unprecedently disastrous depression, and fascism. Both Bernstein and
Hilferding merely repeated the arguments of bourgeois economists.
One of them, in 1928, declared the cause of cyclical fluctuations was
the older type of "innovation," of technical-economic change, by
individual, competing capitalists, and concluded: "Innovation is not
any more typically embodied in new firms, but goes on within the
big trusts. It meets with much less friction. . . . Progress becomes
^automatized,' increasingly impersonal and decreasingly a matter of
leadership and individual initiative. The only fundamental cause of

Monopoly and Finance Capital 415

instability inherent in the capitalist system is losing in importance as
time goes on, and may even be expected to disappear. . . . Capitalism
is economically stable and ever gaining in stability."""^ These argu-
ments v^ere especially plentiful in the United States in 1923-29. They
were answered by the worst depression in American history.

The fundamental causes of capitaUst instabiUty are the antagonism
between production and consumption and between old and new forms
of production. Under the conditions of the decline of capitalism,
they are aggravated by the downward tendency in the production and
absorption of capital goods, the basis of capitalist prosperity. Hence
instability must increase. And Niraism? Monopoly state capitalism?
They aim to unify, to organize capitalism, but their efforts are hope-
less because of the underlying relations which impose limits upon
monopoly. All that state capitaUsm does is to strengthen concentration
and combination, to merge finance capital and the state, to preserve
monopoly capitalism from collapse.

The fundamental contradiction of monopoly capitalism is this: it is
neither free competition nor complete unification of industry. Hence
monopoly capitalism retains most of the contradictions of free competi-
tion and generates new ones of its own. Most fundamental among the
new contradictions is the retention, by monopoly (and state) capital-
ism, of the older social relations of production while the forms of a
new, the socialist, mode of production are objectively fully developed.
Hence monopoly capitalism and the dictatorship of finance capital
multiply the contradictions and antagonisms of capitalist production
and engender an economic decline. Capitalist production is the ex-
tension of contradictions and antagonisms on an enlarged scale, na-
tional and international, until they reach the breaking point.

CHAPTER XXII

The Dynamics of Imperialism

Ji HE enormous development of monopoly and finance capital in the
United States after the World War was marked by an upswing in the
export of capital and imperialism, which are inseparably interlocked
with the underlying relations of monopoly capitalism. While an
economic decline appeared in European imperialism (and capitaUsm),
American imperialism strengthened its economic basis, sank its roots
deep into the national economy, and spread its predatory interests
and power throughout the world.

The dynamics of imperialism are an intensified, concentrated, more
violent expression of the dynamics of capitalist production itself, whose
economic law of motion is the accumulation of capital. This involves
efforts to prevent a fall in the rate of profit, to raise the rate. Both
accumulation and the tendency of the rate of profit to fall are identified
with the increasing concentration of industry and the centralization of
financial control, the aggravation of competition in spite of monopolist
combinations, and the sharpening of contradictions arising out of the
antagonism between production and consumption. Accumulation of
capital, the production and capitalization of surplus value, depends
upon the expansion of industry and markets, and is inevitably ac-
companied by the growth of industrial concentration and monopolist
combination. The basis of concentration is an increase in the scale
of production, which greatly augments the output of goods. If markets
grow sufficiently, the rate of profit may rise; if not, the rate tends to
fall because of the results of excess capacity and competition. New
markets, foreign markets, become imperative, particularly as limitation
of mass consumption is aggravated by disproportionate development
of separate branches of industry. The scramble for foreign markets
includes the scramble for foreign sources of raw materials. Both require
an investment of capital. The export of capital, as distinguished from
the export of goods, acquires constantly greater importance, as direct
investment in foreign enterprises grows. The synthesis of these develop-
ments is monopoly and finance capital, whose driving force is behind
attempts to monopolize markets, raw materials, and investment oppor-
tunities. As concentration and combination grow, there is an exhaustion

416

The Dynamics of Imperialism 417

(on a capitalist basis) of the inner long-time factors of expansion,
resulting in a decreasing output and absorption of capital goods. Mass
markets are still more limited. Excess capacity and surplus capital
mount. The rate of profit threatens to fall disastrously. The outward
thrust toward foreign outlets is strengthened.* Speculation becomes
more international. Capitalist production and foreign trade are more
and more entangled with the economics of the export of capital and
the politics of imperialism, with exploitation of the outer, the inter-
national, long-time factors of expansion. Monopoly capitalism and the
exploitation of economically backward peoples are inseparable.

The export of capital and imperialism emphasize both the importance
and the changing character of the world market in relation to the
origin, development, and decline of capitalism. Foreign trade and
colonialism were vital factors in the commercial revolution of the
sixteenth and seventeenth centuries. Toward the end of the eighteenth
century, however, the intrenched bourgeoisie began to revolt against
coloniaUsm, which was identified with feudal-mercantilist restriction
of free enterprise and trade; for free competition was the basis of
industrial capitalism. One expression of this reaction was the not
very vigorous struggle Britain waged against the embattled colonists
in the American revolutionary war. As Britain became the world's
workshop, with a practical monopoly of the world market because of
its highly developed industrial capitalism, the interest in colonialism
waned. The major exports were consumption goods, especially textiles;
the major aim was merely to trade, to sell dear and buy cheap. By the
i84o's-5o's, the dominant national sentiment, voiced even by future

* "To the extent that foreign trade cheapens partly the elements of constant capital
[equipment and materials] partly the necessities of life for which the variable capital
[wages] is exchanged, it tends to raise the rate of profit by raising the rate of surplus
value and lowering the value of constant capital. It exerts itself generally in this direction
by permitting an expansion of the scale of production. . . . Capitals invested in foreign
trade are in a position to yield a higher rate of profit, because they come in competition
with commodities produced in other countries with lesser facilities of production, so
that an advanced country is enabled to sell its goods above their value even when it
sells them cheaper than the competing countries. ... In the same way a manufacturer,
who exploits a new invention before it has become general, undersells his competitors
and yet sells his commodities above their individual values, that is to say, he exploits
the specifically higher productive power of the labor employed by him as surplus value.
By this means he secures a surplus profit. On the other hand, capitals invested in
colonies, etc. may yield a higher rate of profit for the simple reason that the rate of
profit is higher there on account of the backward development." Karl Marx, Capital,
v. Ill, pp. 278-79.

4i8 The Decline of American Capitalism

aggressive imperialists like Disraeli, was that colonies were a millstone
around Britain's neck.

Developments within the capitalist economy, however, were prepar-
ing the basis of a new colonialism. Not only was the scale of production
growing and multiplying the output of goods, but the necessarily
larger masses of fixed capital forced a constantly larger scale of pro-
duction. The output of means of production, of equipment and ma-
terials, became increasingly important. Many of the newer raw ma-
terials could be secured only overseas; many older materials began to
be imported as inner supplies approached exhaustion (e.g., English
copper, lead, zinc, tin, and iron) or because foreign supplies were
cheaper. As industriaHsm is a metal economy, and abundant sources of
metals were mainly in economically undeveloped regions, the tendency
was to get control of both ownership and production, which meant
an export of capital. The production of industrial equipment was
limited, tending to force down the rate of profit, by exclusive de-
pendence upon home demand: foreign demand and industrialization
were stimulated. This was particularly true in the case of railroads,
whose materials and construction made great demands upon capital
equipment and capital investment. Railroads played as great a part
in the export of capital as they did in the inner accumulation of cap-
ital: most of the British capital invested overseas was in the railroads
of the six continents. Construction of railroads and exploitation of
mineral resources went hand in hand. The export of capital was
different, however, from the mere export of goods, for returns on
the capital invested in economically undeveloped countries depended
upon their political stability. Hence political control was necessary.
Industrial penetration, by destroying the older industries and expro-
priating peasants (or tribesmen) from the soil, aroused antagonisms
and revolt. The tendency toward the monopoly of foreign markets
and raw materials made the necessity of political control all the
stronger, including non-colonial regions, emphasized by the increasing
competition of the newer industrial nations. Instead of colonialism
being abandoned, control of existing colonies was tightened and a
scramble for new colonies ensued. (It was significant of the new
colonialism that Spain could not hold on to its American colonies,
primarily because of an inability to supply industrial products and
capital. Portugal held on to some of its colonies only because of an
imperialist alliance with Britain.) In addition, finance capital and
monopoly penetrated also the more economically developed but still
relatively backward nations, where it secured control of basic enter-

The Dynamics of Imperialism 419

prises and raw materials, plundered the "free" industries and distorted
industrialization.

The upswing of European capitalism after the i86o's, and particu-
larly after the i88o's, was bound up with the export of capital and
imperialism. Export pf surplus goods and capital stimulated the output
and absorption of capital goods, the basis of capitalist expansion. By
the 1900's, as much as 25% of the national wealth of Britain and 15%
of that of France was represented by foreign investments. The three
major imperialist powers had a foreign stake of at least $35,000 million;
Britain, $20,000 million, yielding a yearly income of $900 million;
France, $10,000 million and an income of $400 million; Germany,
$5,000 million (some estimates are higher) and an income of $250
million.^ The rate of profit tended to move upward. During the pre-
war years, the rate of interest on British home investments, roughly
an indication of the rate of profit, rose probably 30%, the most im-
portant cause being the export of capital.^ In particular, the heavy
export industries "earned" surplus profits, while the financial oligarchy,
in control of the banks and monopolist combinations identified with
imperialism, reaped an even richer harvest. But the elements of decline
in imperialism appeared very clearly in its later stages. The higher rate
of profit, and this becomes all the more marked in the epoch of the
decline of capitalism, was accompanied by a downward movement in
the curve of production, an increase in unemployment, stationary real
wages, and more unequal distribution of the national income. Income
from foreign investments increased much more rapidly than other
forms of income. The heavy export industries were disproportionately
developed in Britain, while other fields of home industry were neglected
in favor of the surplus profits of overseas investment; in France, the
national economy was practically stagnant. The upward movement in
technical-economic efficiency began to flatten. (If this was less true in
Germany, it was only because imperialism developed while inner in-
dustriaHzation was as yet not complete.) But these results, according to
one bourgeois economist, writing early in 1914, are "no conclusive rea-
son for a country trying to check the export of capital, because the
injury to the amount of home output is likely to be more than com-
pensated by the higher return presumably obtained on capital invested
abroad."^ The rate of profit // the compelling power of capitalist
production.

As the export of capital became increasingly an export of the interest
(or profits) on existing foreign investments, the elements of decline
assumed more definite shape : for export of interest represents no home

420 The Decline of American Capitalism

production, employment, and wages, it merely piles up the capital
claims of ownership. "To a larger extent every year," wrote J. A. Hob-
son in 1902, in his pioneer study of imperialism, "Great Britain is
becoming a nation Hving upon tribute from abroad, and the classes
who enjoy this tribute have an ever-increasing incentive to employ the
public policy, the public purse, and the pubHc force to extend the field
of their private investments and to safeguard and improve their exist-
ing investments." * Economic stagnation and parasitism are character-
istics of monopoly capitalism and imperialism. They were accompanied
by the multiplication of rentiers and an increase in luxury production
and in the occupations serving the well-to-do. Whole nations, especially
France, acquired the character of rentiers. Just as a handful of monop-
oHsts exploited the nation, so a handful of monopolist nations exploited
the world.

They spoke much of progress everlasting. But it was an illusion. It
was based on the profits of imperialism, on the merciless exploitation of
colonial and other economically backward peoples, the majority of the
world's population. Financial oligarchs feasted on the profits. The
middle class received some of the juicier crumbs, especially in the form
of an export of technical, managerial, and clerical employees to work
in foreign imperiaUst enterprises, and of minor officials to govern
colonies. A bone or two was thrown to the upper layers of the working
class, particularly the trade-union bureaucracy.* For imperialists like
Joseph Chamberlain and Cecil Rhodes, seeing the aggravation of im-
perialist rivalry and the possibility of war, aimed to create a broader
social base for imperialism by "doing something" for the workers,
which in practice included only certain groups of workers. It meant
making the working class the defender of imperialism, with colonial
and other economically backward peoples paying the price. All re-
formist programs, liberal and socialist, consciously or unconsciously
depended upon the "progress" of imperialism for the gradual transition
to "higher" things, to a "new" social order, including socialism itself.

* "The receipt of monopolistically high profits by the capitalists of one of numerous
branches of industry, of one of numerous countries, etc., makes it economically possible
for them to bribe individual strata of the workers, and sometimes a fairly considerable
minority of them, and win them to the side of the bourgeoisie of an industry or nation,
against all the others. The intensification of antagonisms between imperialist nations for
the partition of the world increases this tendency. And so there is created that bond
between imperialism and opportunism, which revealed itself first and most clearly in
England, owing to the fact that certain features of imperialist development were
apparent there much earlier than in other countries." V. I. Lenin, Imperialism, the
Highest Stage of Capitalism, pp. 1 13-14.

The Dynamics of Imperialism 421

Although American imperialism was merely in its beginnings in 1900,
Franklin H. Giddings, the sociologist, identified imperialism with
progress, democracy, civiHzation, the interests of labor, and social re-
form, and concluded: "If, by any mistaken policy, it [the "energy" of
the American people] is denied an outlet, it may discharge itself in
anarchistic, socialistic, and other destructive modes that are likely to
work incalculable mischief."^

But imperiaUst antagonisms became sharper and sharper, exploited
older sentiments of national interest, and exploded in the catastrophe
of the World War. Liberalism and moderate socialism rallied to the
support of "their own" national imperiaUst governments. The illusion
of progress everlasting was irretrievably shattered. . . .

American imperialism lagged behind the European, although con-
centration, combination, and finance capital were on the whole more
highly developed in the United States than in Europe. This is one of
the significant peculiarities of American capitalism. It was primarily
due to what may be conveniently described as an inner imperialism;
or, in other words, to conditions whose economics resembled those of
the export of capital.

The economic relations of colonialism measurably existed between
the more highly developed Northeastern regions and the inner conti-
nental areas. (The conquest of Texas and California had some of the
political aspects of colonialism, although there was also an element of
the slavery "imperialism" of the South.) In the earlier "colonial"
stage, from the 1820's to the 1850's, the inner areas absorbed mainly
settlers and industrial consumption goods in exchange for foodstuffs
and raw materials: it was essentially a trading relation. In the later
"colonial" stage, especially after the i86o's, the emphasis was on the
absorption of capital goods and on industrialization, for the great areas
could not be limited to agriculture. The highly industrial Northeastern
states (comparable, in resources and economic development, with
Britain and Northwestern Europe, which exploited other areas) ex-
ported capital and means of production and transport to the Western
regions and seized their natural resources. This was not simply the
earlier, more or less limited and general industrialization as it appeared
in the nations of Europe: it was on a vastly greater scale, making it
possible for more than one particular industrial center to arise, was
dominated by finance capital operating from the Northeastern states,
and assumed sectional forms and gave a sectional twist to class struggles
and ideology, which are of real importance in American history. The
struggle between agriculture and industry appeared as a struggle

422 The Decline of American Capitalism

between West and East; Western debtors, who were most active in
the Populist revolts, owed money to Eastern financiers and investors,
who also owned the railroads exploiting the farmers. Export of surplus
goods and capital to the inner continental areas prevented a decided
fall in the rate of profit, made possible a constantly greater output of
capital goods. Monopolist combinations extended their control over
inner markets and resources, and invested surplus profits in American
branch plants as new industrial regions arose. Exploitation of immi-
grant (and Negro) workers was an aspect of these developments,
roughly comparable to the British, German, and French importation
and exploitation, after the 1890's, of large numbers of immigrants from
Russia, Poland, Austria, Spain, and Italy.''*' The real outer imperialism
was only emergent at a time when, from the i88o's to 1910, it was being
consolidated in the economy of the highly industrial nations of Europe.

The inner "export" of capital had general results similar to those of
the outer variety. Highly industrial nations export goods and capital
to colonial and other economically undeveloped regions. But these
regions develop their own industries, either native or branch enterprises
of foreign combinations. Markets are restricted and home industry
adversely afiFected. The New England boot and shoe industry tended
to decline because of the competition of new centers of production in
the West. This was prevented, in the case of iron and steel, by the
control of monopolist combinations. The Lancashire cotton textile in-
dustry declined because of the competition of new foreign centers of
production; the New England industry began to decline, before the
World War, because of the rise, after the 1890's, of an indigenous
cotton textile industry in the Southern states. No comparable develop-
ments appeared within the nations of Europe, they appeared only as
between these nations and aggravated the antagonisms of imperialism.
The relative economic decline of New England and imperialist Britain
(in both regions there was, in addition, a decline of agriculture) is
extremely significant.

But these peculiarities of American development were over by 1910,
when a real outer imperialism was definitely and aggressively in opera-

* "In the United States, immigrants from Eastern and Southern Europe are engaged
in the most poorly paid occupations, while American workers provide the highest
percentage of foremen and of the better-paid workers. Imperialism has the tendency to
create privileged sections even among the workers, and to separate them from the main
proletarian masses." Lenin, Imperialism, p. 96. The earlier manifestations of this
tendency were enormously strengthened by monopoly capitalism. To-day, because
of capitalist decline and the increase in the surplus population, the doors are slammed
shut in the faces of immigrants.

The Dynamics of Imperialism 423

tion. Nor did they prevent the appearance, in the earUer years, of the
substantial beginnings of imperiahsm. They were scattered, the expres-
sion primarily of particular combinations and enterprisers, but they
moved inexorably toward larger institutional expression. ... In the
i88o's, an emergent imperialist policy was manifest: the Samoan adven-
ture almost involved the United States, Britain, and Germany in war;
combined rule of the island by the three was accompanied by the usual
atrocities of colonial warfare. Congress was agitated by demands for a
more aggressive foreign policy and a larger navy, and by opposition
(including President Hayes) to the French building the Panama Canal.
Most important of all, the emphasis on relations with Latin America
changed from political to economic, expressed in proposals for a cus-
toms union directed against Europe, in line with the larger interests of
capital in the United States, and eventually transformed the Monroe
Doctrine. ... By the 1890's, American capitaUsts were promoting rail-
roads in Mexico and other Latin-American countries in competition
with the British and the French; William R. Grace, the "Pirate of
Peru," was exploiting that country's mineral resources, railroads,
finances, and politics; and Minor C. Keith was creating the economic
and political empire of the United Fruit Company in the Caribbeans
(the blood of exploited native workers fertilized the bananas consumed
in the United States). . . . Standard Oil spread its tentacles over the
world, while another Rockefeller company, the Lake Superior Consoli-
dated Mines (acquired by ruthless trickery and later absorbed by the
United States Steel Corporation), owned iron mines in Cuba. So did
Carnegie Steel and Bethlehem Steel. American mining interests in
Cuba included manganese and nickel. . . . American capitalists secured
asphalt concessions in Venezuela; when these were threatened, the
State Department acted to protect "American rights." . . . The Ameri-
can Sugar Refining Company, the Sugar Trust, controlling 90% of the
refining output in the United States, held substantial interests in Cuba
through a subsidiary and the personal holdings of its master, H. O.
Havemeyer. Mechanization of the sugar industry in Cuba compelled
the import of American capital, which in 1896 amounted to $30,000,000.
. . . American capitalists, including Standard Oil interests, organized
the American China Development Company to exploit coal mining
and railroad concessions and industrial franchises. . . . The war began
between American and British capital for control of international com-
munications; it has since aroused extremely sharp antagonisms. After
spreading a network of telegraphs and cables over Latin America in
competition with the British, the Mexican Telegraph Company, organ-

424 The Decline of American Capitalism

ized and controlled by Americans, planned a Pacific cable to compete
with the British. The House of Morgan became identified with the
project, which secured Congressional support. One vice-admiral said:
"It can easily be seen what an advantage this freedom of communica-
tion would prove in the great race for supremacy in China." ... By
1900, $500 million of American capital was invested abroad, including
government loans (particularly Mexican) .... An imperialist ideology
was definitely being shaped, although it emphasized commercial more
than financial interests, which was also true of the earlier beginnings
of imperialism in Europe. In 1895, Henry Cabot Lodge said: "For the
sake of our commercial supremacy in the Pacific we should control the
Hawaiian Islands and maintain our influence in Samoa. Our immedi-
ate pecuniary interests in Cuba are very great. Free Cuba would mean
an opportunity for American capital invited there by signal exemp-
tions. But we have also a broader political interest in the fate of Cuba.
She lies athwart the Hne which leads to the Nicaraguan Canal." ^

Out of these beginnings of imperialism arose the Spanish-American
War. Some historians argue that the war was not an imperialist one,
because "our" immediate economic stake in Cuba was not very large.
But that is mere economic determinism, a vulgarization of the materi-
alist conception of history. For immediate economic interests seldom
bulk very large and may even be violated in the interest of policy. It is
the general drift and necessity of underlying class-economic forces
which are decisive, and the ideology they create. Ideology is itself a
social force. An active imperiaHst ideology was developing under the
minor pressure of immediate economic development and the major
pressure of the division of the world among the European powers,
clarifying the aims of emergent American imperialism and preparing
it for the future. This was the decisive factor in the Cuban intervention
and the acquisition of a colonial empire in the Caribbean and the
Pacific, while the war itself shaped imperialist objectives and ideology.*
One sociologist urged American conquest and control of the tropics for
their "economic possibilities." '^ The war with Spain, according to
Brooks Adams, who also identified imperialism with progress and re-
form, was "a link in a long chain of events which, when complete,
would represent one of those memorable revolutions wherein civiliza-
tions pass from an old to a new equilibrium. Competition has entered
a period of greater stress; and competition, in its acutest form, is war.

* Another element in the Spanish- American War was the unrest of workers and
farmers in the 1890's. A ruling class may resort to war to stifle social discontent. The
American victory was a contributing factor in the overwhelming re-election of McKinley.

The Dynamics of Imperialism 425

America has been irresistibly impelled to produce a large industrial
surplus. Upon the existence of this surplus hinges the future, for the
United States must provide sure and adequate outlets for her products
or be in danger of gluts more dangerous to society than many panics
such as 1873 and 1893. The laws of nature are immutable. Money will
flow where it earns most return, and investments once made are always
protected."* And the Bankers Magazine said in 1900, driving home
the logic of the Spanish war and of American participation, with Euro-
pean imperialist powers, in the suppression of the Boxer Chinese revolt :

"Nations whose citizens have large interests abroad must necessarily
encounter difficulties, which may sometimes be settled by diplomacy,
but which frequently can be overcome only by force of arms. The em-
ployment of armies naturally drifts into what is called conquest. The
United States, having become a lender of its surplus resources, must
follow the methods which such development requires, and it has the
advantage of the experience of other nations."^

From 1900 to 1910, monopoly and finance capital tightened their
grip upon the American economy, resulting in an accelerated growth
of imperialism, although it did not become dominant. . . . Because of
the backwash of inner imperialism and the absorption of surplus capital
by the recapitalization of industry through trustification, which ab-
sorbed large masses of investment capital, the export of capital in the
form of American purchase of foreign securities was almost negligible,
although loans were floated for many Latin-American countries and
for Britain, Japan, and Russia. . . . But direct investment abroad by
monopolist combinations is also an export of capital; in fact, it is of
primary importance, because it is most closely identified with efforts
to monopolize markets, profitable enterprises, and natural resources.
. . . Steel companies acquired mines in Chile and Brazil, and forced
an agreement on world markets with European steel interests. . . .
The United Fruit Company spread itself all over the Caribbeans, ac-
quiring natural resources, building railroads and docks, making its
own loans to governments. . . . General Electric invested capital in
many parts of the world, competing with the British and the Germans
in the creation and control of markets; it acquired large interests,
particularly in Latin America, in light and power plants and in elec-
trical communications. ... So did, in their own lines, International
Harvester and the meat packers. . . . Morgan-Hill efforts to extend the
power of their Northwestern railroad system to Canada provoked
charges that they were trying to get control of the country's railroads
and mines. . . . American capital secured railroad concessions in

426 The Decline of American Capitalism

Mexico, Panama, and Bolivia. . . . The Guggenheims and other min-
ing interests got increasing control o£ foreign mines, particularly in
Mexico, Bolivia, Peru, and Chile. . . . Edward H. Harriman's aggres-
sive struggle, in direct competition with European and Japanese im-
perialist interests, to secure railroad and mining concessions in China
was actively backed up by the State Department. . . . Standard Oil,
assuming greater international dimensions, fought bitterly with the
British for control of world sources of petroleum. . . . Discovery of
petroleum in Mexico led to more aggressive American penetration by
the 1910'sand another embittered clash with the- British, involving Mex-
ican poHtics and revolutions. . . . The monopolist combinations en-
gaged in these imperialist struggles were associated with the great
banks, which in many cases direcdy participated, particularly the
National City Bank, whose acquisition of the National Bank of Haiti
was followed by American military intervention. . . . Most significant
of the role of finance capital in imperialism was the organization,
in 1902, of the International Banking Corporation, which later became
a subsidiary of the National City Bank. The International was a con-
centration, for imperialist purposes, of the most important factors in
monopoly and finance capital: the National City Bank, Standard Oil,
Harriman, and the Guggenheims, including a working alHance with
the House of Morgan in the later struggles for loans and concessions
in China. By 1910, the International had sixteen branches, in China,
Japan, India, the Philippines, Mexico, Santo Domingo, and Panama.
It was the most conscious financial force in stimulating the export of
goods and capital, in securing control of foreign sources of raw ma-
terials, in unifying the scattered elements of developing American
imperialism. . . . Still more conscious and unified was the political ex-
pression of imperialism, for the American government adopted an ag-
gressive imperialist policy. . . . President Theodore Roosevelt definitely
transformed the Monroe Doctrine into a weapon of imperialist aggres-
sion in Latin America; it was now intended to prevent economic, not
merely poHtical, penetration by the European powers. . . . Construc-
tion of the Panama Canal, an expression of imperialist policy, was
accompanied by ruthless disregard of Colombian rights: "I took the
Canal Zone," Roosevelt boasted, "and let the Congress debate." (Fraud
tainted the purchase of the Canal rights from the French company,
which was paid $40,000,000 by the American government through the
Morgans and other financial capitalists. The question was asked at
the time: "Who got the money?" It has never been answered.) . . .
Roosevelt used the Big Stick to enforce American financial and political

The Dynamics of Imperialism 427

"rights" in the Caribbean repubUcs, including military intervention
and the imposition of protectorates. . . . The tendency was to convert
Latin America into the colonial basis of American imperialism, em-
bittering the clash with British, German, and French capital. . . .
As the antagonisms of imperialism sharpened, they converged on
China, which was bludgeoned into submission by the most brutal use
of financial, diplomatic, and military force. After making the Monroe
Doctrine a means of limiting the penetration of European capital in
Latin America, the American government insisted on realization of the
"open door" in the plundering of China. Trade was emphasized in
the original "open door" doctrine of Secretary Hay. From the i88o's
to the 1900's, the growth of large-scale industry, with its multiplica-
tion of goods, made foreign markets increasingly necessary. This was
urged by all the great capitalists, the Carnegies, Rockefellers, Hills
(James J. Hill wanted American domination of Asiatic markets so
that his Western railroads might have more goods to transport). But
foreign trade becomes, under modern conditions, entangled with the
export of capital and imperialism. Markets are not free, they are under
measurable control. "Spheres of influence," said Thomas W. Lamont,
one of the Morgan partners, "served to divide up China commercially
into almost water-tight compartments, and the nations like the United
States which had no compartments could not do much trading." So the
"open door" doctrine, its emphasis shifting from trade to investment,
became the form of expression of American imperialist policy in China.
... In 1909, an offensive was launched by the Taft Administration,
which asked and received the cooperation of the House of Morgan,
of the financial oligarchy. The government made demands upon the
governments of China and the five powers for an equal share in
Chinese loans, mining concessions, and railroad construction. The
Morgans made similar demands upon the bankers of the powers.
American "dollar diplomacy" won a substantial victory, resulting in a
truce and a financial protectorate over China. . . . President Wilson
made the bankers withdraw in 1913, but at the same time he strength-
ened imperialist policy in Latin America, opposing, e. g., the granting
of oil concessions to non- American interests as a menace to the Monroe
Doctrine. ... By 1913, American foreign investments amounted to
$2,500 million, mainly the direct investments of dominant combina-
tions. While comparatively small, the investments represented new
capital, not an export of interest; without them the relative economic
decHne in the period 1900-14 might have been more marked.^*
American imperialism came into its own during the World War

428 The Decline of American Capitalism

and the post-war period, the development of an inherent tendency
accelerated by the mishaps of European imperialism. Under pressure
of a direct economic stake in the victory of the Allies (the v^^ar loans)
and a larger imperiaHst stake in the issue of world power, the United
States was thrust into the war. The war augmented industrial con-
centration and combination and the centralization of financial control.
It also opened new foreign markets to American goods and capital,
and geared industry to the export of capital on a large scale. Finance
capital mobilized for world action. Shortly after the war, the House
of Morgan organized the Foreign Finance Corporation, a concentra-
tion of financial interests including four Morgan banks, the National
City Bank, and the Chase National Bank. Another concentration of
financial forces was the formation by the Morgans, in 1922, of the
Bank of Central and South America, with twenty-two branches. By
1926, eight American banks owned 107 foreign branches in the world's
strategic centers, mainly in Latin America, of which the National
City Bank owned seventy-three, including twenty-two owned by its
subsidiary, the International Banking Corporation.^^ The struggle for
control of markets and investment opportunities was waged every-
where, anyhow. American foreign investments (excluding inter-gov-
ernmental loans) rose from $2,625 million in 1914 to $17,967 million in
1932, of which more than one-half represents the direct investments
of monopolist combinations; foreign investments yielded, in 1920-29, an
income of $9,896 million.^^ The United States became the world's chief
exporter of capital, imperiaHsm a dominant and inseparable aspect of
the American economy. Germany's foreign investments were wiped
out (including expropriations by the Allies), French investments rose
only slightly, those of the British remained stationary at $20,000 milHon,
and only Japan scored a marked increase. World power was prac-
tically thrust upon the United States, and it was not rejected.

The upswing of American prosperity in 1923-29 was invigorated by
the export of capital, which, except for the later years, was mainly an
export of new capital. But it simultaneously intensified the instability
of capitalist production and prosperity. For the export of capital, the
financial mechanism of imperialism, is both an expression and aggra-
vation of the contradictions and antagonisms which assume extraordi-
narily acute forms under monopoly capitalism and imperialism:

I. Limitation of markets, because of the increasing disparity between
production and consumption, accompanied by depressed standards of
living among the masses. This reflects the inability of capitalism to
balance production and consumption and to develop fully all the

The Dynamics of Imperialism 429

forces of mass consumption. Competition is aggravated, prices may
fall to unprofitable levels, and the rate of profit move downward. An
increasing export of surplus goods becomes necessary. The instability
of capitalist production is intensified. For the constant increase of ex-
ports makes the national economy dependent more and more upon
fluctuations in the world market, and trade is inevitably entangled
with imperialism because of colonial monopoly, spheres of influence,
and other devices for the imperialist control of markets. The export
of goods, moreover, tends to become subordinate to the export of
capital and of interest on existing foreign investments; this is ac-
companied by a downward tendency in home production, which
limits employment, wages, and mass consumption and makes markets
still more limited.

2. Excess capacity, both cause and effect of limited markets and
aggravated competition. The increasingly higher composition of capita]
and the relative or absolute fall in wages necessarily limit the mass
markets for consumption goods. Excess capacity is augmented, as the
disparity between production and consumption grows and limits the
demand for consumption goods and capital goods. The rate of profit
tends to move downward. It was estimated, in the pre-1929 days of
prosperity, that American cotton mills should export 20% of their
output to permit them to run at capacity .^^ The production of auto-
mobiles was marked by increasing excess capacity, yet the industry
exported an average of 15.2% of its output in 1924-29.^^ An average of
10,000,000 tons of steel was available yearly for export, but only 20%
was exported, making "excess capacity a continuous threat to the do-
mestic price structure and to profits." ^^ This condition was most
threatening in the basic heavy industries, which were particularly
aggressive in the drive for foreign markets. The drive becomes an
aspect of imperialism because of the imperialist division of the world.
But exports are merely an evasion of the problem of excess capacity,
which can be solved only by balancing production and consumption, by
the planned economy of socialism. As exports rise the scale of produc-
tion is enlarged; the resulting changes in the composition of capital
and their effects create still more excess capacity, particularly as new
foreign centers of production arise. This is all the more disastrous as
world markets change suddenly under the influence of competition or
break down more than home markets under the impact of depression.

3. Surplus capital, which becomes increasingly larger as capitalist
production approaches exhaustion of the inner long-time factors of
expansion. In the decisive class-economic sense, surplus capital is an

430 The Decline of American Capitalism

absolute deprival of mass consumption, for it represents capital which
industry does not need and cannot use without disturbing results^
Hence it is the most fruitful source of capitalist instability. Surplus
capital produces more excess capacity, more competition, more down-
ward pressure on the rate of profit. If surplus capital is "distributed"
in the form of higher wages, it is consumed and does not become
capitalist claims upon wealth and income. If it is exported, it becomes
capital or capital claims regardless of whether, and this is the beautiful
thing from the capitalist angle, the importing country spends the
money on consumption goods or capital goods: in either case the for-
eign owner of the capital receives his claims upon future production
and income. Thus capital export makes possible a larger accumulation
of capital, while it relieves the pressure of surplus capital on home
industry and tends to raise the rate of profit. But this development
assumes an antagonistic form: in the measure that the pressure is
relieved and the rate of profit moves up, relative wages fall, markets
are limited, and surplus capital arises anew, augmented by the income
on foreign investments (which produces no corresponding home in-
come). Export of capital becomes still more necessary. But as this is
increasingly an export of interest on existing foreign investments,
which is not identified with export of goods because it is not new
capital, home production moves downward and the problem of
surplus capital becomes more acute.

4. Monopoly, whose surplus profits are threatened by excess capacity
and limited markets. Monopolist combinations are not immune to a
serious fall in the rate of profit, because of the enlarged scale of pro-
duction and monopoly competition. Combinations struggle aggressively
for foreign markets. All industries need these markets; but in practice,
owing to the barriers of tariffs and similar measures, only monopolist
combinations as a rule are able to invade foreign markets. Exports
are concentrated in the basic heavy industries. Where the barriers are
insurmountable, combinations start their own plants in foreign coun-
tries. (In addition, foreign plants are established to take advantage of
low-wage labor and of proximity to raw materials and markets.) In
1932, 711 American corporations owned 1,819 foreign branch plants,
representing an invested capital of $2,178 million (out of |8,500 milHon
of direct investments) : $1,033 million in manufactures and $1,145 ^il^'
lion in the production of raw materials. Limited as the number of
companies was, the limitation of industries was still greater : $529 mil-
lion, or more than half the capital in manufactures, was invested in

The Dynamics of Imperialism 431

plants making automobiles, electrical apparatus, industrial machinery,
and other metal products/^ All are industries dominated by monopolist
combinations; and this is also true of mining. The outward thrust of
combinations is not simply a search for new markets to absorb surplus
goods, but also to absorb surplus capital. For reinvestment of the profits
of monopoly within its own field is limited, it must invade non-
monopoly fields and exploit the "free" industries. Both results are
accomplished by means of the direct export of capital: it is invested
in strategic enterprises like mining, metal manufactures, transporta-
tion, electrical communications, and light and power, whose monopoly
domination permits the exploitation of "free" industries. The inflow
of surplus profits from abroad tends to raise the rate of profit of
monopolist combinations. Moreover, precisely because of their monop-
oly character, these combinations break through national barriers and
become international, striving to monopolize the world's markets,
sources of raw materials, and investment opportunities. But they are
merely interested in profits: anywhere, anyhow, independently of the
needs of the national economy. Their direct investments in foreign
enterprises usually yield profits without any export of goods (for
direct investments increasingly represent reinvested foreign profits or
interest, and only new capital is identified with export of goods) —
emphasizing that, as the export of capital grows, it becomes more
important than the export of goods.

5. Exhaustion of the inner long-time factors of expansion, the most
fundamental aspect of the export of capital and imperialism. Only ex-
pansion can overcome (temporarily) the contradictions and antago-
nisms of capitalist production, permit an increasing accumulation of
capital, and prevent a disastrous fall in the rate of profit. This means
an increasing output and absorption of capital goods, the conversion
of surplus value into capital, and an augmenting of capitalist claims
upon production and income. It also means an increase in employment,
wages, and mass consumption. But monopoly capitalism is identified
with measurable exhaustion of the inner factors of expansion, with a
downward tendency in the output and absorption of capital goods. As
long as capitalism is on the upswing, with rising accumulation, pro-
duction, and consumption, foreign trade may be an- exchange of goods
for goods. But when the tendency is downward, imports in general
are restricted, because they can be absorbed only by raising wages and
mass consumption; this means higher wages and lower profits, and
is unprofitable for the capitalist. The export of surplus goods must

432 The Decline of American Capitalism

more and more become an export of capital, that is, they must be paid
for by foreigners not with other goods, but with capital claims upon
their future production and income. The downward tendency in the
inner absorption of capital goods must be compensated by an upward
tendency in the outer. In other words, the export of capital and im-
perialism exploit the long-time factors of expansion in economically
undeveloped countries (or the expansion possibilities of particular
industries in more fully developed countries). But imperiaHsm tends
quickly to exhaust the outer long-time factors of expansion by hamper-
ing their free and full growth, even on a capitalist basis. It forces a
lopsided development upon countries under its control, for imperial-
ism is interested in quick and surplus profits and not in the economy
as a whole. Agriculture and mining are overdeveloped to make profits
on railroad construction and lower the prices of foodstuffs and raw
materials; this results in overproduction, disastrous price falls, and
the ruin of whole peoples. Monopoly controls, disturbing as they are in
a highly industrial economy, are still more disturbing in a relatively
undeveloped one, for they are more powerful because of the preva-
lence of small-scale enterprise and their foreign affiliations. The "free"
industries are mercilessly exploited. Low wages, which are general and
very low, and the export of profits depress local mass consumption
and restrict balanced economic expansion. These conditions limit the
absorption of capital goods. The non-imperialist countries are tied hand
and foot to the interests of the imperialist powers, and their unbal-
anced economy is affected with the most destructive force by the
maladjustments and disturbances of monopoly capitalism. Thus the
decline and decay of capitalism thwarts economic progress where it
might still move onward. This reacts upon and aggravates the decline
of capitalism: the home economy becomes stagnant and parasitic,
while development of the outer long-time factors of expansion, which
might give capitalism a new lease on life, is hampered by monopoly
and imperialism.

6. The dictatorship of finance capital, of the financial oligarchy,
which dominates both the monopoHst combinations making direct
investments abroad and the monopolist banks originating and selling
foreign securities. The most perfect fusion of industrial and banking
capital appears in the export of capital and imperialism. Ownership,
management, and control are separated on a colossal scale. By subordi-
nating the export and import of goods to the production of financial
and speculative profits, finance capital emphasizes that its primary
interest is not the production and sale of goods. To Ivar Kreuger and

The Dynamics of Imperialism 433

his American and British associates, the match industry was merely a
pretext for the construction of a world monopoly for financial and
speculative purposes. Enterprises are plundered, whole peoples mer-
cilessly exploited, stock exchanges and governments manipulated,
colonial wars instigated. (American capitalists, who have invested
$40,000,000 in the government bonds and $73,000,000 in the tin mines,
petroleum fields, and other industries of Bolivia, are encouraging and
financing that country's war with Paraguay over the Chaco, which
would give Bolivia access to the sea. "American interests now suffer-
ing financial losses in Bolivia will save millions in transport charges
if Bolivia captures the Chaco.") ^^ Finance capital, adventurous, specu-
lative, international, is the driving force behind imperialism;''^ and
finance capital is the form of expression of monopoly capitalism, of
capitalist decline and decay.

A bourgeois economist insists: "The moving force in American
capital exports is large-scale industry, mass production at its height.
. . . The leaders of expansion are not in the realm o£ finance capital,
but of big industrial business." ^^ This is a confusion of both fact and
theory. Nearly half of American capital exports are not identified
directly with monopolist combinations. Who, moreover, dominates
"big industrial business"? Finance capital, the financiers, the financial
oligarchy operating by control of both monopolist combinations and
monopolist banks. The whole amalgam is under control of a small
group of giant oligarchs. General Electric, United States Steel, Radio
Corporation, and General Motors fly the flag of the Morgans and the
du Fonts; Standard Oil and other corporations, of the Rockefellers
and the Chase National Bank; the most important American mining
interests abroad are identified with the Guggenheims and the Mellons,
and both of these with the National City Bank and the Morgans, who
are also identified with Anaconda Copper and the foreign interests of
American Telephone and Telegraph. As in Europe, so in the United
States, the great banking houses are the most active promoters of

* Of the foreign bond issues floated in the United States in 1920-30, J. P, Morgan
and Company originated $1,807 million; the Guaranty Company, security affiliate of
the Morgan Guaranty Trust Company, $540 million; the National City Company,
affiUate of the National City Bank, $1,072 million; Chase Securities Company, affiliate
of the Chase National Bank, Equitable Trust Company (absorbed by Chase National),
and Harris, Forbes and Company (absorbed by Chase Securities), $1,300 million;
Dillon, Read and Company, $1,491 million, U. S. Senate, Hearings Before the Senate
Committee on Finance, Sales of Foreign Bonds or Securities in the United States (1932),
pp. 419, 501, 902, 1,263.

434 The Decline of American Capitalism

the export of capital and imperialism: J. P. Morgan and Company,
the Chase National Bank, and the National City Bank, which, in
addition to control or influence over the most powerful monopolist
combinations, have direct investments in the banks and industrial
corporations of a score of countries, particularly in Latin America.
Undoubtedly American combinations are more directly active in the
export of capital than in England and France; but there also the most
powerful factors in the export of capital and imperialism are the
metallurgical, electrical (both manufactures and power), mining, com-
munications, and chemical combinations. This was as true in pre-war
Germany as in the United States to-day, and the German combinations
were closely bound up with a few dominant banks.

The activity of monopolist combinations proves, moreover, that the
export of capital and imperialism are not "merely" a "policy" of finance
capital. Monopoly and finance capital are inseparable, are the result
of the same underlying changes in capitalist production, they grow
out of and dominate a definite stage of capitalism.* This is the stage
where capitalism revolts against its basis, free competition, begins to
decline and decay, is rotten-ripe for change. To avoid the change,
which can be nothing else than socialism, monopoly capitalism turns
to the export of capital and imperialism. The theory that imperialism
is a "policy" of finance capital or of monopolist combinations and not a
stage of capitalism itself implies that imperialism may be "reformed"
out of existence by "curbing" the international financiers or the trusts,
by means of struggle against their "excesses." But as monopoly and
imperialism arise out of capitalist production and intensify all its
contradictions and antagonisms, the problem of their abolition is
interlocked with the aboHtion of capitalism itself. . . .

The export of capital in the form of loans to foreign governments
is frequently accompanied by thievery and corruption. Only part of
the profits appear in the bankers' commissions. One Latin-American
government received $190,000 on a loan of $3,800,000, another $3,200,000
on a loan of $10,000,000. Loans are forced upon weak governments by
means of financial and political pressure, they are often for the most
sinister purposes (including provocation of war), and they are made

• "Imperialism is capitalism at that stage of development in which the domination
of monopolies and finance capital has taken shape; in which the export of capital has
acquired pronounced importance; in which the division of the world by the interna-
tional trusts has begun, and in which the partition of all the territory of the earth by the
greatest capitalist countries has been completed. . . . Imperialism, as understood in
this sense, undoubtedly represents a special stage in the development of capitalism."
Lenin, Imperialism, p. 81.

The Dynamics of Imperialism 435

when bankers know the governments are on the verge of bankruptcy.*
Dehberately false statements are made in advertising the loans. Amer-
ican bankers in Cuba gave "easy" jobs to Machado's favorites, includ-
ing his "perfectly useless" son; the Chase National Bank made personal
loans of $400,000 to the Cuban dictator, and loans to other prominent
government figures. (Machado was for years president of the Cuban
subsidiary of the Electric Bond and Share Company.) In connection
with a loan to Peru, the American bankers paid a "commission" of
$415,000 to the dictator's son, Juan Leguia, who lived at the rate of
$250,000 to $300,000 a year; this, it was explained, is "customary."^®
The people, the workers and peasants, pay.

Loans to foreign governments are seldom simple financial transac-
tions. They are interwoven with imperialist economic and political
objectives, the struggle for concessions and spheres of influence. This
is amply clear in the series of loans made to the Chinese government,
which was plundered of both its finances and its economic resources,
with the help of the diplomatic and military pressure of the lending
powers. Another, an American, illustration was the way a government
loan and diplomacy were used to secure an immensely valuable oil
concession in Colombia. This was the Barco concession, sold in 1917
to the Carib Syndicate, a company controlled by H. L. Doherty, of the
Cities Service Company, and J. P. Morgan and Company. Gulf Oil,
a Mellon corporation, bought the Doherty interest in 1926, when the
Colombian government was threatening cancellation. The concession
was cancelled. The State Department protested sharply against the
violation of "American rights," but to no avail. Colombia was denied
loans, apparently with the approval of the American Government. In
1930, the new president, Olaya, asked the National City Bank for a
loan; its grant was urged by the State Department, which acted as
intermediary. According to Olaya, Mellon, then Secretary of the

* In 1933, $1,400 million of Latin-American government bonds were in default, 60%
of the total, while European government bonds suffered tremendous depreciation. This
is nothing new. According to Max Winkler, Foreign Bonds: An Autopsy (1933), p. 135,
54% of all foreign government obligations listed on the London Exchange were in
default in 1880. Losses have been tremendous. But the losses do not affect the bankers'
profit nor the direct investments of monopolist combinations. Investors in home securi-
ties suffer similar losses. It is part of the plunder extorted by the financial oligarchy.
The losses, moreover, help to keep capitalism going by destroying capital and making
new investments possible, precisely as the losses of competition and depression help
to maintain or restore "normal" investment and productive relations. Crazy? It is
capitalist production. The losses of British investors in foreign securities did not prevent
an increase in the export of capital.

436 The Decline of American Capitalism

Treasury, advised him to "settle the petroleum problem to hasten
Colombia's recovery." A syndicate formed by the National City Bank
agreed to extend a credit of $20,000,000 payable in instalments and upon
condition that the petroleum controversy w^as settled. The Mellon-
Morgan interests were granted a fifty-year concession on the Barco
oil fields. Telegrams from the American minister in Colombia were
shown to representatives of the National City Bank, whose officials
were in constant touch with the State Department. A Senate commit-
tee investigating the affair was refused one of these telegrams except
"in confidence." The following discussion between Senator Johnson
and Francis White, Assistant Secretary of State, is illuminating:

Johnson: When you received a telegram from the minister at Bo-
gota, it was read over the telephone to Mr. Lancaster [of counsel for
the National City Bank]?

White: That is right.

Johnson: Do you refuse to produce that telegram?

White: I will have to take the matter under advisement.

Johnson: Do you mean to say that your policy is that you will read
a telegram over the telephone to a representative of New York bankers,
and yet you will deny that same telegram to the Senate of the United
States?

White: I do not deny it to the Senate of the United States. But I
do deny it to the press of the country.

Johnson: You deny it to the press of the country?

White: Yes, sir.

Johnson : Yet you thought it very proper to read it to the representa-
tive of bankers in New York.^^

Independent foreign corporations may float securities in the Amer-
ican market on a purely investment basis. Usually, however, flotations
of foreign corporate securities represent either corporations under
American control or in alliance with an American combination. The
export of capital is bound up, directly or indirectly, with the efforts
of monopoly to become international.

Monopoly capitalism and imperialism reproduce, on a world scale,
the conditions of domination within the national borders. Power fuels
and metals and the industries they sustain, including machinery, are
basic in the modern economy; their control means supreme power.
Giant monopolist combinations are in mining, iron and steel, oil,
light and power, electrical manufactures, chemicals, and transporta-
tion. This is the dominant inner zone, in which the Morgans, Rocke-
fellers, du Fonts, Guggenheims, and Mellons move and have their

The Dynamics of Imperialism 437

being; or rather, control of which, through the relations of finance
capital, yields them their power. An intermediate zonfc is composed
of variegated industries, some approaching monopoly character, most
"free" industries exploited by monopoly. The outer zone of agriculture
is a limbo, exploited by the inner zone and even by the intermediate.
In the world economy there is an inner zone of major industrial-
imperialist powers, an outer zone of producers of agricultural staples
(mainly colonial), and an intermediate zone of countries approaching
monopoly and imperialism, but dominated mainly by agriculture and
"free" industries.^^ In addition to exploiting the agriculture and "free"
industries of the outer and intermediate zones, imperialism aims to
get control of the strategic resources and industries of all countries,
and thereby make monopoly international.

The nature and objectives of the export of capital and imperialism
necessarily mean a concentration of foreign investment in a few basic
industries and enterprises. Of $2,178 milUon American capital invested
in branch plants abroad, $1,145 million was in the production of raw
materials, and that is independent of the investment in mining prop-
erties; of the capital in manufactures, more than half was in four
basic industries. Over $1,000 million is invested in foreign power enter-
prises, whose control makes possible an exploitation of industry in
general. In 1927, of $1,265 niihion American capital invested in Mexico,
$911 million was in railroads, mining, oil production, and smelting.
From 1914 to 1929, $5,113 million of foreign corporate securities were
floated in the American market, the major groups being as follows:
Public utilities, $1,206 million; railroads and ships, $1,004 million;
banking, $700 million; mining, $646 million; manufacturers (mainly
machinery, chemicals, textiles, and automobiles), $460 million."^ Most
of the corporations were owned or controlled by American interests
or in alliance with them.

Minerals, which provide the metals for the construction of machines
and the power to run them, are a decisive aspect of the export of
capital and imperialism. (Some non-minerals, e.g., cotton, rubber, and
raw sugar, are also important; the one afiFects British imperialist policy
in Egypt, the other British, Dutch and American policy in Malaysia,
the East Indies, the Philippines, and Liberia, the third, American
policy in Cuba, Porto Rico, and Hawaii.) While no nation is self-
sufficient in minerals, some have a larger resource endowment than
others, and they are the highly industrial and imperialist nations. The
world struggle for control of minerals has for its purpose either to
supplement existing reserves or reserves approaching exhaustion, as

438 The Decline of American Capitalism

in the case of the United States, Britain, and France, or to make up
for a natural scarcity of essential minerals, as in the case of Italy and
Japan. These purposes, under the influence of finance capital, are
transformed into efforts to secure monopoly control for the mere sake
of monopoly profits. Disproportions in the world economy created
by the uneven distribution of mineral resources are made still greater
by the monopoly controls of imperialism.*

Monopoly controls affect, in general, only non-reproducible raw
materials, especially oil and metals. It is more profitable to exploit
"free" agriculture in the production of other materials. . . . British and
American interests control the world's oil reserves, 70% of which are
located in economically backward countries. The ruthless struggle for
supremacy, waged all over the world by one British and three or four
American combinations, involves diplomacy and war. . . . Three na-
tions and a handful of combinations control the world's iron ore re-
serves. Two American corporations, which in ten years may need large
imports of ore, own mines in Cuba, Brazil, Chile, and the PhiHppines;
British interests own mines in Africa, Spain, and Canada, the French
in North Africa, and the Japanese in Manchukuo. . . . No steel pro-
ducing nation has sufficient resources of ferro-alloys, and they are
important stakes of imperialist politics. American interests own man-
ganese mines in Brazil and Cuba, the French in Morocco. . . . Amer-
ican interests control 38,000,000 tons of the world's copper resources
(20,000,000 tons in Latin America), the British 27,000,000 tons all in
foreign countries, the Belgian 7,000,000 tons in the Congo, and the
Japanese 4,000,000 tons. Part of the British reserves in Canada are
owned by American capital. Ten combinations, two in the United
States, control the copper industry. American efforts to acquire copper
interests in Africa were repulsed by the British. . . . One British com-
bination has a practical monopoly of the world's tin, based on mines
in the Malaysian colony. The United States has no tin, but one Amer-
ican corporation controls the tin mines of Bolivia, the only serious
competitor of the British. ... In alliance with two European groups,
the Aluminum Company of America controls the world's bauxite
reserves; the Mellons also control the one world trust, the AUiance

* Some of the disproportions and monopoly controls are being broken by synthetic
raw materials, but only partly, because they are as yet limited and their production
requires large amounts of capital. Synthetic materials introduce new elements of in-
stability by their effect on prices; in the case of Chile, its national economy, which had
come to depend upon the production of nitrates owing to the pressure of imperialist
capital, was disrupted by the competition of synthetic nitrates.

The Dynamics of Imperialism 439

Aluminium Company, with a monopoly of aluminum production.
. . . Zinc production is dominated by three American and five Euro-
pean companies. . . . The International Nickel Company of Canada,
in which American interests acquired the majority stock in 1930, is a
monopoly with a capacity in excess of the world's needs.^^

Monopoly controls of raw materials, actively supported by govern-
ments, arouse bitter antagonisms among nations. The situation is
made worse by the fact that finance capital pursues a policy of monop-
oly profits independent of the interests of the home economy; thus
the complaint is made that, because of the world interests of the
copper combinations, "a program primarily designed for the American
copper industry as such is impossible to conceive."^

The struggle to control the world's natural resources is interlocked
with the struggle to control markets and investment opportunities in
general. The most thorough form of control is colonial. All the im-
perialist powers have acquired large colonial empires: Britain, 13,-
616,000 square miles, population 417,000,000; France, 6,400,000 square
miles, population 59,000,000; Belgium, Holland, Italy, and Portugal,
3,436,000 square miles, population 72,000,000; Japan, 478,000 square
miles, population 25,000,000 (including Manchukuo). The "mother"
country's share in colonial trade, which has risen more in recent years
than foreign trade in general, ranges from 33% in the case of Italy
to 71% in the case of Japan. Manchukuo is a perfect colonial monopoly:
it has absorbed more than Ji,ooo million of Japanese capital, 75% of
its 1933 imports of $419 million were from Japan, its large resources
of coal, iron, and shale oil are wholly under Japanese control, and its
economic policy is decided by the South Manchuria Railway.^^
Colonial controls are being tightened. The British Empire is trying to
become self-sustaining, a "closed economic system." France is pursu-
ing a similar policy .^^ Japan excludes other nations as much as possible
from its colonial possessions. These measures constitute acts of aggres-
sion against both the colonies and other nations, and are especially
resented by imperialist powers with small colonial domains.

Although the United States started late to fight for colonial empire,
it has acquired a substantial share in the territorial division of the
world. The share includes:

Colonies with 910,000 square miles and a population of 25,000,000
in Cuba, the Philippines, Alaska, Liberia, the Caribbeans, and Central
America.

Financial and disguised political protectorates, with a semi-colonial

440 The Decline of American Capitalism

status, in Mexico, Colombia, Bolivia, Venezuela, Ecuador, and Peru:

2,950,000 square miles and a population of 35,000,000.

Political and financial overlordship in the balance (and the whole)
of Latin America through economic power and imperialist interpre-
tation of the Monroe Doctrine.

Latin America constitutes in general the colonial basis of American
imperialism. Direct colonial control and its costs are avoided as much
as possible; dependence is upon economic power and political over-
lordship. This policy may change as imperialist antagonisms sharpen.
British, French, and other "alien" interests are being inexorably
driven from Latin America, an enormous market for goods and cap-
ital, rich in natural resources. The American government may veto
a concession to the nationals of any other power on the ground that
it violates the Monroe Doctrine (which is a national doctrine of the
United States and is rejected by Latin Americans). It means bolting
the door against imperialist competitors. At the same time, American
imperialism insists on the "open door" in China and elsewhere. While
this policy appears to be one of "liberal" principles and "equality of
opportunity," it is in fact an imperialist challenge to redivide the
world, to abrogate the controls of colonial monopoly, protectorates,
and spheres of influence, whose abrogation might easily mean the
competitive victory of American imperialism because of its enor-
mous industrial and financial resources. The "doctrine" formulated by
Secretary of State Stimson and affirmed by President Roosevelt, that
violation of the "open door" in China would force the United States
to adopt more aggressive measures to maintain its "rights," was an
openly imperialist threat of war.

Colonial enterprise yields large surplus profits. The major reason is
low wages, the sweating of labor in the most merciless manner, includ-
ing forms of forced labor indistinguishable from slavery. In 1933, when
world copper prices were unprofitable, the British-Belgian copper
mines in Africa made high profits: unskilled native labor was paid 15c
a day, skilled labor $10 a month, with even lower wages in many
cases.^'^ These are the conditions in an American economic colony:

"How did the American tin magnates in Bolivia manage to make
a profit in the face of extraordinary shipping costs? Wages were barely
enough to live on, so that the Indians remained permanently in debt
to the mining company. Over 50% of the population is living in
peonage. Labor laws of Bolivia provide for the 8-hour day, but the
12-hour day is practiced. The 7-day week is common, while in one
mine a continuous shift of thirty-six hours was the regular routine. The

<
2

<:
u

S

442 The Decline of American Capitalism

Patifio mines, a National Lead subsidiary (an American company which
controls 80% of the tin output), operated at a production cost 20% be-
low the world average and declared 15% dividends. . . . The people liv-
ing in this land of wealth are poverty-stricken. Only 9% of the national
budget is devoted to education; 85% o£ the people are illiterate. Bolivia
is virtually a colony of the United States; American investors own
or hold mortgages on the whole land."^^

These conditions are general in colonial and semi-colonial countries.
The inhuman exploitation of labor yields a higher rate of profit. Low
wages react and eventually produce low wages in the home country,
while limited consumption limits exports and imports as financial
profits grow, a tendency which is enormously strengthened by capitalist
decline. The main result is an increase of capitalist parasitism and
luxury.

Coloniahsm is only one aspect of the imperialist struggle for control
of markets, natural resources, and investment opportunities. The strug-
gle is limited to no particular part of the world; it includes agrarian
and industrial countries. Imperialist capital is active wherever there are
markets to control, natural resources to seize, strategic industries to
monopolize, or "free" industries to plunder. French imperialism was
strengthened (and a group of financial capitalists enriched) by seizure
of the mining and metal industries of Alsace-Lorraine and the Saar,
while German imperialism aimed to seize those of Belgium and
Northern France. Where new or comparatively new industries are
developing, such as electric power, aluminum, and rayon, imperialist
capital penetrates even highly developed countries to secure monopoly
control. British and American imperiaUsm struggle desperately in
Latin America, Canada, India, Australia, and Africa. American capital
invades Britain, and measures have been taken to prevent its control
of British combinations. British capital retaliates by invading the
United States; the Royal Dutch strikes at Standard Oil in its own
market by forming an American company. Shell Union Oil, with
assets of nearly $500 million. Neither national nor colonial limits or
interests hamper finance capital in its world operations, in the thrust
for monopoly profits. The American Allied Chemical and Dye Corpo-
ration struggles aggressively for markets with its German and British
rivals; yet, the Corporation complains, American financiers invest
capital in both the British and the German chemical combinations.^®
In 1930 American and British interests formed the General Telephone
and Electric Corporation to compete with the International Telephone
and Telegraph Corporation, subsidiary of the American Telephone

The Dynamics of Imperialism 443

and Telegraph Company .^^ Monopoly profits become more important
than the export of goods. Tariff barriers may keep out goods, but not
capital. The general situation appears clearly in the distribution of
American foreign investments in 1932:^^

Latin America $6,094 million, of which $3,361 million represented
direct investments, mainly in mining, railroads, smelting, oil, light and
pov^er, and electrical communications; about $2,500 million was in-
vested in Mexico and Cuba.

Europe $5,765 million, of which $2,500 million was invested in in-
dustrial and power enterprises, including $629 million in branch plants
of American combinations; six large combinations alone had an in-
vestment of $164 million in branch plants.

Canada $4,601 million, more than half direct investments, of which
nearly $600 million was in American branch plants and another large
part in mining; 35% of the capital invested in Canadian enterprises is
foreign, 20% American and 13% British.

Australasia, Africa, and Asia, $1,507 million, including China, the
Philippines, and Liberia; the African investment represents mainly
the Firestone interests in Liberian plantations, where native labor is
mercilessly exploited with the benevolent approval of the native gov-
ernment and the American State Department.

In the struggle for control of the world's markets, natural resources,
and investment opportunities American monopolist combinations meet
the competition of foreign combinations, with a consequent intensifica-
tion of international competition and antagonisms. Even more than
in the home markets monopolist combinations aggravate competition
in world markets. Attempts are made to limit competition by division
of markets, stock interests in competing combinations, and interlock-
ing directorates. The Alliance Aluminium Company unites aluminum
producers into a world trust; the American I. G. Chemical Corpora-
tion combines American and German chemical interests; the French
and German chemical trusts make an agreement; General Electric,
through its subsidiary. International General Electric, acquires sub-
stantial interests in German and French electrical manufacturing com-
binations; the Electric Bond and Share Company, with interests
throughout the world, becomes a factor in British and International
Utilities and in the Adriatica-Volpi power group.^^ These are merely
a few illustrations of the interlocking of monopoly interests. In addi-
tion, cartels are formed for steel, zinc, copper, rayon, nitrates, tin.
But the cartels are engaged in perpetual internecine warfare over prices
and quotas, the same warfare that goes on within national cartels.

444 The Decline of American Capitalism

Agreements, alliances, and cartels are only armistices in the struggle
for monopoly control and profits; they are repeatedly violated, espe-
cially in depression. All international cartels have been weakened or
dissolved since 1929. Competition assumes more savage forms. Co-
operation becomes itself a source of strife. At the head of the Bagdad
Railway, one of the causes of the World War, were fifteen Germans,
six Frenchmen, and three Belgians, who were perpetually struggling
and intriguing for a larger share of the enterprise.^^ International
finance capital prepares imperialist war.

The economic division of the world among monopoUst combinations
and its territorial division among imperialist powers drives fatedly to
war. Imperialism resorts to the arbitrament of the sword to maintain
its "right" to exploit the world's peoples and resources, to overcome
competitors. After analyzing the bitter struggle between American and
British capital throughout the world, an American "liberal" imperialist
concludes: "Either the supremacy of America will be recognized by
Britain in peace, or that supremacy will be asserted in battles of
blood." ^* In other words: "Yield! The world is ours." But there is
no such simple yielding. Now a world power, the United States is
aggressively and insolently aware of its might. It stands athwart the
imperialist ambitions of Britain in Latin America, of Japan in China.
A struggle looms for control of the Pacific. Conferences are held. The
League of Nations invokes peace where there is no peace. The "agree-
ments" and "understandings" parallel the maneuvers of the European
powers prior to the World War. Meanwhile antagonisms multiply
and the powers prepare war — against each other, against the Soviet
Union, an incalculable revolutionary force, whose overthrow might
yield imperialism a new lease on life. The war danger becomes momen-
tarily more threatening.

For imperialism must aggravate international contradictions and
antagonisms, precisely as monopoly does within the national economy.
Monopoly defeats its own purpose if it includes all industry: there can
then be no monopoly profits. Combinations must plunder each other
and the "free" industries. So imperialist nations must plunder each
other while they plunder the economically backward peoples. But
these peoples, even if on a lower level, develop their own industrialism,
with excess capacity, surplus goods, and surplus capital. These torments
of capitalist production are aggravated within the imperialist nations.
As the surplus of goods and capital mounts, markets are limited, and
the international long-time factors of expansion are exhausted, im-

The Dynamics of Imperialism 445

perialist nations must compete more aggressively with one another,
in the same manner as combinations within the nation are forced to
compete more aggressively. Monopolist combinations, moreover, are
under pressure of the general capitaUst needs of the national economy;
and however much they pursue a policy independent of those needs,
the pressure is still there, with frequently explosive results. There can
be no unity of imperiaUsm, no agreement to cease competition and
warfare. And if, temporarily, an "ultra-imperialism" were possible,
what would it mean? It would mean more ruthless exploitation of
non-imperialist peoples, stagnation, low wages, and unemployment in
the home economy, an accumulation of underlying contradictions and
antagonisms which would inevitably explode into new wars. As the
basis of imperialism narrows and the decline of capitalism becomes
more acute, an intensified struggle ensues for the redivision of the
world.

A liberal student of imperiaHsm writes: "Backward countries and
colonies are not necessaries but luxuries for expanding capitalism.
Fundamentally, economic imperialism is a symptom of overgrown
production and excessive profits. But the lag between consumption and
production may be reduced either by diminishing production, or, more
comfortably, by increasing consumption. This means more wages and
more spending and less profits and less investing.^^ Exactly! It is,
however, precisely to avoid "less profits and less investing" that monop-
oly capitaHsm resorts to the export of capital and imperialism. And
the "lag" or antagonism between production and consumption is an
inherent contradiction of capitalism, an inseparable aspect of the
accumulation of capital. Imperialism is a means for accumulation on
an ascending scale. The liberal prescription asks capitalism to commit
suicide. In theory, the demagogic spokesmen of the NRA want to
"adjust" consumption to production; in practice, they encourage profits,
stimulate exports, fight for American "rights" in Latin America, and
prepare for war. The Nazis forget AutarJ{ie, the "closed economic
system," use government power to force exports, cast hungry eyes
upon undeveloped territory, and prepare for war. Mussolini, in 1934,
formulates a sixty-year program of imperiaUst expansion in Africa and
Asia, "after which Italy will have the primacy of the world," and pre-
pares for war.^^ State capitalism and fascism aggravate the antagonisms
of imperialism by measurably merging industry and the state, by
making the state more "planfully" an organ of finance capital: the
struggles of monopolist combinations to control the world become
more quickly "national" issues and more easily lead to war.

446 The Decline of American Capitalism

Monopoly capitalism and imperialism breed reaction as well as war.
Imperialism exploits a country partly in alliance with its most reaction-
ary social groups, against the workers and peasants. They may be
feudal-agrarian groups; or rising capitalist groups, who are afraid that
an aggressive struggle for national liberation might result in worker-
peasant revolutions. The historic policy of British imperialism is also
the policy of American imperialism. Financially and politically the
United States upholds the most reactionary forces in the Philippines,
the unspeakable dictatorship of Gomez in Venezuela and of other
Latin-American tyrants. (American capital, both loans and direct in-
vestments, were of enormous service in the consolidation of the fascist
dictatorship in Italy.) The counter-revolutionary forces in Mexico were
encouraged by the American government. It upheld the Machado
dictatorship in Cuba; except for the American threat of intervention,
according to one bourgeois commentator, "the people of Cuba would
long since have driven Machado out of power. The State Department
has uniformly thrown its influence against any revolt." ^^ And when
the revolt took place, the State Department and its agents intrigued
against the more radical governments and helped to restore a regime
not much different from Machado's.* Imperialism has consumed the
liberalism of American pre-imperialist international policy.

Imperialist repression and reaction in colonial and other "backward"
countries react and intensify repression and reaction in the home
country. For monopoly capitalism and imperialism revolt against both
free competition and its Hberal ideology. "The substitution of monopoly
for free competition," according to a bourgeois scholar, "has assimi-
lated the views of the commercial classes to those held formerly by
feudal aristocracies."^* Imperialism and fascism, which merge into
one violent reactionary and aggressive force, are the most perfect
expression of monopoly's retrogressive tendency.

At the same time imperialism strengthens the tendency toward eco-
nomic stagnation and parasitism. The increasingly parasitic nature of

• The gesture of the Roosevelt Administration to "free" Cuba of the Piatt Amend-
ment is practically meaningless. This is admitted in an editorial of the New York Times,
May 31, 1934: "It remains true that, with or without a treaty, the American govern-
ment may lawfully intervene to protect its own nationals or their property. . . . More-
over, the retention of the naval base at Guantanamo is a clear indication that Cuba is
embraced within the plans of the United States for national defense. Guantanamo has
its relation to the Panama Canal and also to the Monroe Doctrine. . . . All this must
be clear to intelligent Cubans. Their rejoicing over the abolition of the Piatt Amend-
ment is largely sentimental.'*

The Dynamics of Imperialism 447

capitalist ownership is revealed most strikingly by imperialism.* A
handful of investors in six imperialist pov^ers own, directly or indirectly,
foreign investments of probably l55,ooo million, yielding an income of
at least $3,000 million yearly. Ownership is almost wholly impersonal
and institutional. More than half the American foreign investments
of $18,000 million are owned by combinations and nearly $1,000 million
by banks, in addition to other institutional holdings. The income is
received by a handful of investors, who know nothing of the source of
the income. Another handful own the personal holdings: $1,250 miUion
of German government and corporate bonds are owned by 200,000
American investors; five foreign government issues in 1923-25, totaUng
$380 million, were bought by only 104,713 investors.^^ (Yet the Foreign
Bondholders Protective Council makes the interests of its members
coextensive with those of the American people; a government corpora-
tion is urged to protect the interests.) *^ To insure the tribute of these
parasitic rentiers, foreign labor is mercilessly exploited, governments
increase their armaments, and wars are waged.

This parasitism is accompanied by a tendency toward stagnation in
the home economy. While colonialism and the earlier imperialism
emphasized the export and import of goods, later imperialism makes
the export of capital more important than the export of goods. For
finance capital is interested primarily in profits, not in goods or the
home economy. Branch plants in foreign countries yield profits mainly
independently of the home economy. Mining combinations produce
minerals abroad, even if it hurts the home industry, and sell the output
in any market. The bitter struggle between American and British
capital for control of the world's electrical communications, latent with
the threat of war, involve only small profits on the export of equipment
(although this is a factor) : the main profits are "earned" independently
of the export of goods. The American electrical manufacturing com-
binations. General Electric and Westinghouse, own or control light
and power systems in Latin America, Europe, and Asia. These interests
were originally acquired to provide and control markets for machinery
and apparatus, but that purpose is now subordinate to the profits
secured from operating revenues. The capital with which combinations
operate in foreign countries is increasingly derived from reinvested
profits, and tends to separate international finance "capital more com-

• Imperialism is a "social parasitic process by which a moneyed interest within the
state, usurping the reins of government, makes for imperial expansion in order to
fasten economic suckers into foreign bodies so as to drain them of their wealth in order
to support domestic luxury." J. A. Hobson, Imperialism (1902), p. 389

44^ The Decline of American Capitalism

pletely from its contacts with the home economy. Thus in Cuba, in
1928, of the American capital investment of $1,140 million, not more
than $500 million represented an export of new capital; ^^ the balance
was capitalized profits. The interest received on American foreign in-
vestments in 1928—29 was almost as great as the export of capital in
those two years. In Britain before the World War the income from
foreign investments had already become more important than the net
gains from foreign trade. According to the Board of Trade, the British
income from foreign investments in 1933 was £155 million, the profit
on the export of goods only about £35 million.^^ American exports
and imports in 1920-30 amounted to $102,000 million.*^ Assuming a
profit yield of 10%, the total profits from foreign trade were $10,200
million, only slightly more than the foreign investment income of
$9,896 million. In 1930, the income from foreign investments was
greater than the profits from foreign trade, nearly $1,000 million com-
pared with $730 million. The income from foreign investments, which
increasingly represent the export of interest on existing investments,
not the export of new capital or goods, is derived from no economic
activity within the home economy, produces no employment, wages,
or mass consumption. It merely augments the income and strengthens
the parasitism of the financial oligarchy, of rentiers : a supreme expres-
sion of the tendency of monopoly capitalism to make the production
of financial and speculative profits more important than the production
of goods. The workers "gain" only from greater demand for luxury
goods and servants.

The parasitism of imperialism strengthens the tendency of monopoly
capitalism toward economic stagnation and decay. Monopoly acts as a
relative check upon production, emphasized by the exhaustion of the
inner long-time factors of expansion. This is partly offset by the export
of capital and imperialism, in their earlier stages; but the later stages
intensify stagnation and decay. One aspect of these developments is
the necessity for an imperialist nation to increase its imports; for not
all the interest on foreign investments can be reinvested, part of it
must be consumed. Since 1900 the British excess of imports over exports
has risen enormously, tribute wrung from "backward" peoples. A simi-
lar necessity is developing in the United States. But the imports will
be limited to a few categories. Monopolist combinations will not permit
the import of goods which threaten their own markets. They must be
primarily goods produced by the "free" industries, whose chaos and
decay are aggravated. Above all, they must be goods produced by agri-
culture (and mining products, because monopoly can recoup itself in

The Dynamics of Imperialism 449

foreign markets). The agricultural crisis becomes more acute, the
farmers thrust more rapidly downward into the peasant class.*
As the income from foreign investments is of foreign origin and con-
centrated in a handful of investors, it represents no home employment,
wages, and mass purchasing power; only this income, therefore, can
buy the "excess" imports (or their equivalent). Local production and
goods are displaced. Employment and wages fall, particularly as, under
the conditions of decline, low colonial wages exert a greater downward
pressure on home wages. Thus the export of capital and imperialism,
an effort to escape decline, react and intensify the decline of capitalism.
This economic undermining is accompanied by political undermining;
for colonial revolts against imperialism tend to become struggles
against capitalism itself, a phase of the same struggle in the "mother"
country.

All these contradictions and antagonisms, mass disemployment, lower
standards of living, and the threat of more destructive wars result from
violation of the imperative mandate of objective conditions which
demand new social relations of production. Monopoly and finance
capital exploit the objective socialization of production, they prevent
the forces of consumption developing commensurately with the enor-
mous forces of production of modern society, prevent a new society
from emerging. Imperialism exploits the increasingly international
character of industry, the constantly greater economic interdependence

* "We are now in that blessed state of being a creditor nation. The rest of the world
must every year produce at least $i,ooo million of goods and services over and above
local needs to pay us our pound of flesh in interest charges. It must be axiomatic that
our debtors neither will be able to pay nor, what is more important, be in a position
to borrow further unless they are permitted to produce those commodities they are
capable of most easily. It is foolish to expect that American finance capitalism in the
long run will at once subsidize American commercial agriculture and encourage other
commercial agricultural economies to expand. A choice is imperative, for the world
market for foods is contracting. The course England followed in the 1850's and i86o's,
because it was dictated by necessity, is the same round we must embark on. ... To
keep South America and China open for American capital: to build railroads, wharfs,
and power transmission lines; to finance governments so that they may embark on public
construction programs; to open mines, dig oil wells, cut down forests; to lend local
enterprisers money for the erection of factories: the world-^and that includes the
United States — ^must be permitted to buy Manchurian (and eventually Mongolian) wheat
and soy beans, Uruguayan and Brazilian jerked beef, Argentinian wheat, corn, mutton,
and chilled beef. . . . American commercial agriculture is doomed. No gifts of clair-
voyance are required to foretell that the future of the American farmer is the character-
istic one of all peasants for whom, in our present system of society, there is no hope."
Louis M. Hacker, The Farmer is Doomed (1933), pp. 29-30, 31.

450 The Decline of American Capitalism

of nations, which is economically distorted to yield profits and is politi-
cally converted into a source of conflict and war.

Thus imperialism is the final expression of the decline and decay
of capitalism. It is marked by wars and revolution. For as war comes,
communism issues its call to transform the imperialist war into a civil
war o£ the oppressed against the oppressors — a struggle for social-
ism. . . .

In the national economy, there is no going backward to small-scale
production: we must go onward toward the new social relations im-
plicit in the socialization of production, toward the planned economy
of socialism. In the international economy, there is no going backward
to small-scale national units of production : we must go onward toward
the new international relations implicit in the economic interdepend-
ence of nations, toward the planned economy of world socialism. Both
these measures necessitate abolition of the profit motive, of capitalist
production. There must be a cooperative, rational, planned distribution
of the world's natural and industrial resources: regional (not merely
national) planning as the basis of unified international planning.

Both internationalism and large-scale industry (which does not ex-
clude the largest possible measure of decentralization, especially the
unity of industry and agriculture) must be accepted, released from the
fetters which destroy their promise. The internationalism of free com-
petition, of industrial capitalism, was progressive in spite of its preda-
tory aspects; it thrust the world onward to a new order. The imperialist
internationaUsm of monopoly capitalism is wholly predatory, it thrusts
the world backward to reaction and war, the strangling of progress.
Socialist internationalism, arising out of objective economic necessity
and the conviction that complete socialism is possible only on a world
scale, is wholly progressive, the expression of an economy of abundance
and peace: an internationalism which does not exclude national and
regional differences in culture, for the merging of the strains makes a
finer world symphony.

Summary

'uT of capitalist competition arises the concentration of industry.
For the competitive struggle, waged primarily by cheapening costs,
develops the imperative to produce more and sell more. This involves
the necessity of enlarging the scale of production, emphasized by the
pressure of technological change, with its constantly greater demands
for fixed capital and raw materials, and the efforts to overcome a fall
in the rate of profit by increasing its mass. Thus capitaUst expansion
and accumulation are accompanied by the gradual but inexorable rise
to power of large-scale industry. Small individual producers are replaced
by giant corporate enterprises, utilizing the most efficient methods of
production and distribution, including inner planning and the control
of raw materials and markets throughout the world.

Concentration is interwoven, both as cause and effect, with a complex
system of interdependent institutional arrangements: economic activity
becomes more and more collective, more social in its forms. A funda-
mental change occurs in the objective relations of capitalist production.
Ownership and management are separated by the multipHcation of
stockholders. Ownership is vested in stockholders who own but do not
manage and merely receive dividends. Management is vested in em-
ployees who manage but (as a functional group) do not own. The
stockholder, beyond the pieces of paper which represent ownership, is
unable to say "this" or "that" is "mine." He knows nothing of the
enterprise in whose ownership he has a stake, except its dividend yield
and stock market quotations. Corporate industry is institutional or im-
personal, an immense objective socialization of production; but the
older relations of private or personal ownership and appropriation
persist within the newer economic forms.

Industrial concentration represents an essentially new mode of pro-
duction developing within the older social relations of capitalist pro-
duction, the objective basis of a new social order, of socialism. But
industrial concentration also develops forces which are a negation of
its progressive aspects, the forces of monopoly and finance capital.
Socialization of production makes monopoly possible, and monopoly
tends to sacrifice efficiency and output in favor of higher prices and

452 The Decline of American Capitalism

surplus profits, of speculation and financiering. Separation of owner-
ship and management permits seizure of control by the financial
oligarchy, which imposes its dictatorship over industry. The industrial
capitalist combined predatory and constructive functions; the financial
capitalist is wholly predatory. Where industrial capitaUsm was identi-
fied with economic progress and upswing, monopoly capitalism is
identified with retrogression and decline.

Monopoly capitalism is accompanied by measurable exhaustion of
the inner long-time factors of expansion. This means an absolute or
relative fall in the output and absorption of capital goods, the basis of
capitalist accumulation and prosperity. Restriction of employment in
the capital goods industries restricts the creation of mass purchasing
power. Consumption moves downward. But the industrial concentra-
tion underlying monopoly capitalism represents an enormous increase
in the productive forces of society. Hence both excess capacity and sur-
plus capital mount. These conditions limit the realization of surplus
value as profit and its conversion into capital. The rate of profit tends
to fall, and sets in motion efforts to overcome the fall. Competition
flares up in new forms. It is intensified in the non-monopoly fields;
and, since monopoly is seldom complete, monopolist combinations
alternate between cooperation and competition, with competition tend-
ing to become more destructive. The situation is aggravated as monop-
oly enlarges its field of control, for monopoly thrives only when it is
comparatively limited, only where there is a mass of "free" industries
to exploit. As contradictions and antagonisms are aggravated, monop-
oly capitalism seeks a way out in the export of capital and imperialism.

Monopoly, by its very nature, strives to become international, to con-
trol foreign markets, sources of raw materials, and investment oppor-
tunities. This is not merely a policy of monopoly and finance capital,
but the expression of a new stage of capitalism. In the epoch of up-
swing, of industrial capitalism, when the output and absorption of
capital goods moved upward, the emphasis was on the export of
goods; in the epoch of decline, of monopoly capitalism, when the out-
put and absorption of capital goods moves downward, the emphasis
is on the export of capital to offset limitation of inner investment oppor-
tunities and capital accumulation. But, as in the case of monopoly,
there are definite limits to the export of capital and imperialism. They
thrive only when restricted to a small circle of highly industrial nations;
as the circle widens and expansion contracts, the imperialist nations
must plunder one another. Hence war inevitably results from the
struggle for the economic and territorial division and domination of

Summary 453

the world. Imperialism is the violent expression o£ the efforts o£
monopoly capitalism to overcome the limitations upon accumulation,
and the resulting tendency toward economic decline, by exploiting the
outer, the international long-time factors o£ expansion.

These eflForts are only partly and temporarily successful, and they
eventually strengthen the elements of decline. The export of capital
becomes more and more an export of interest on existing foreign in-
vestments. Imperialist finance capital increasingly operates in the world
markets with reinvested profits, independently of the needs of the
home economy, which is no longer stimulated by an export of capital
identified with the export of goods. Dominated by an alien monopoly
and imperialism, the development of economically backward countries
is distorted and hampered by the mere fact of domination and by the
pressure of the decline of capitalism. The outer long-time factors of
expansion are quickly exhausted (on a capitalist basis). This reacts
and aggravates inner decline, sharpens imperialist antagonisms, and
multiplies the burdens of armaments and the dangers of war.

Underlying the decline of capitalism, and the desperate imperialist
eflforts to overcome it, is the objective clash between older and newer
relations of production. From a social-economic viewpoint, monopoly
capitalism and imperialism are the transition to a new social order;
from a class-economic viewpoint, they are an effort, by the dominant
capitalist interests, to prevent the birth of that order. This sharpens
both economic contradictions and class antagonisms. The clash be-
tween the old and the new, under the conditions of capitalist decline,
is no longer "softened" by the upswing of capitalism and prosperity.

Class lines become more rigid and class differences more acute. The
mass of the farmers, exploited by monopoly capitalism and imperialism,
are thrust downward to the level of an American peasantry. Large
elements of the middle class, particularly small businessmen and pro-
fessionals, are objectively proletarianized, deprived of their occupations
and property. The working class, whose driving force is the industrial
proletariat, the specific creation of capitaHst production, is tormented
by disemployment and lower standards of living. Class struggles be-
come more violent, develop new forms and objectives. As capitalist
decline makes it impossible to adjust class antagonisms peacefully, by
balancing one interest against another, a struggle for power arises, for
the power to decide what shall be done with the economic order. The
interests of the capitalist class are identified with repression of the new
relations of production, moving backward to reaction and stagnation.
The interests of the working class are identified with liberation of the

454 The Decline of American Capitalism

new relations of production, moving onward to progress and socialism.

Incapable of an independent historical policy, the farmers and the

exploited groups of the middle class must accept either the reactionary

pohcy of the capitalist class or the revolutionary policy of the working

class.

PART EIGHT
The Struggle for Power

Introductory

JtLcoNOMic forces — institutions and their ideology — are interlocked
with the class relations of society. In any society based on private
property the relations of production mean the domination of a par-
ticular class ruling over other classes. Economic contradictions and
antagonisms, and economic development in general, are expressed in
class interests and class struggles. The focal point of the class struggle
is the state, for its force is necessary to realize class interests. Thus the
class struggle is a struggle for power: to maintain or secure control of
the state to decide the issues created by class-economic contradictions
and antagonism. Neither economics nor politics are intelligible without
reference to class relations and the balance of class power.

In "normal" times the class struggle is comparatively peaceful and
the struggle for power mainly potential. The ruling class is solidly
entrenched in the state, supported by all the institutional and ideologi-
cal relations arising out of the existing order. It may be forced to make
temporary or minor concessions; but this is compatible with the con-
tinuance and consolidation of its power for three reasons: the ruling
class still represents at least the possibility of economic progress and,
by and large, still "delivers the goods," its concessions blunt the edge of
opposition and strengthen its institutional and ideological supports, and
the ruled classes are neither desperate enough nor conscious enough
to initiate a revolutionary struggle for power. When American capi-
talism was on the upswing, the struggles of the agrarian, middle class,
and labor radicals were easily smothered by a policy of concessions and
suppression and the hope of better things. But this has its limits. While
the ruling class is strengthened, it is at the same time undermined by
social-economic forces which eventually produce a decline and crisis
of the system. Dominant institutional and ideological relations begin
to crumble. The ruling class no longer represents even the possibility
of economic progress: it no longer "delivers the goods." Hope of better
things is replaced by bitter disillusion. Concessions are more difficult
to make and do not satisfy, for they are limited by economic decline
and the interests of the ruling class. Class struggles become more in-
tense and explosive, more conscious of goals and means. As classes

457

458 The Decline of American Capitalism

mobilize and fight, issues are clarified. The struggle for power becomes
the order of the day, for it is now clear that the real struggle is between
the old order and the new, and their class representatives: i^., in con-
temporary society, capitalism and socialism, the capitalist class and the
working class. This struggle absorbs all other issues and classes.

The emerging struggle for power is being shaped by three major
developments:

1. The cyclical crisis: its unprecedented severity, bound up with an
important qualitative change in the character of depression, profoundly
disturbed institutional and ideological relations.

2. The crisis of prosperity: the inability to restore prosperity on any
considerable scale, with its terrible consequences in disemployment,
lower standards of living, and the resort to imperialism and war, means
that the institutional and ideological disturbances of the depression
will be transformed into sharper and more conscious class struggles.

3. The crisis of the capitalist system: Both the severity of the depres-
sion and the inability to restore prosperity on any considerable scale are
aspects of the decline of capitalism. Capitalist relations are no longer
compatible with the development of the forces of production, they
now mean an absolute limitation of production. This clearly reveals
the transitory, the relative historical character of the capitalist mode of
production. It is a crisis of the system itself, whose only possible out-
come is socialism or economic and cultural decay.

This crisis of the system compels the intervention of the state — the
state of the ruling class. Although it claims to act in "the public in-
terest," for the people, society, and nation, state capitalism is really an
expression of the class struggle, of the efforts of capitalist interests to
maintain their rule and the system it represents. One liberal apologist
of the NRA unwittingly gave the case away in justifying the resort to
state capitahsm:

"The old economic forces still work and they do produce a balance
after a while. But they take so long to do it and they crush so many
men in the process that the strain on the social system becomes in-
tolerable. Leaving economic forces to work themselves out as they now
stand will produce an economic balance, but in the course of it you
may have half of the entire country begging in the streets or starving
to death." ^

Consider the significant words: the strain on the social system be-
comes intolerable. It does, endangering the capitalist system: hence the
intervention of the state. But why, in the past, did not "leaving eco-
nomic forces to work themselves out" produce an "intolerable social

Introductory 459

strain" ? Because capitalism was on the upswing, had not yet exhausted
the possibiHty of economic progress. Now, with capitaUsm on the de-
cHne, it means milUons "begging in the streets or starving to death."
Only an economic balance on a lower level can be produced, in spite
of state intervention. For the measures of state capitalism are not in-
tended, as other NRA apologists claim, "for the primary purpose of
providing full employment with adequate purchasing power," " but
to bolster up the old order, aid it to function on a profitable basis,
maintain capitalist domination: precisely the factors which are re-
sponsible for the crisis. Because of economic decline and the class
nature of the state, any possible "economic balance" is necessarily
accompanied by disemployment and lower standards of living. Behind
the compromises, concessions, and pretenses of state capitalism is the
ruthless determination to maintain capitalist supremacy. This aggra-
vates the crisis of the system and arouses constantly greater opposition.
The capitalist struggle to maintain power is answered by the revolu-
tionary struggle of the working class to conquer power.

CHAPTER XXIII

Prosperity and Capitalist Decline

EcovERY and prosperity must be on a lower level. From an eco-
nomic viewpoint, this means the exhaustion of the progressive forces
of production on a capitalist basis; from a class viewpoint, it means
that capitalist domination prevents a reorganization of industry which
would insure an upswing of production and consumption. The result-
ing class-economic crisis is an expression of the decline of capitahsm.

This depression (and all the European post-war depressions) is
quantitatively different from its pre-war predecessors in greater depth
and duration: in the unprecedented decrease in production and em-
ployment and in the agonizingly slow and incomplete character of
recovery. The quantitative difference is determined by a qualitative
difference of the utmost historical importance: former depressions
were an aspect of the youth and upswing of capitalism; depression
now is an aspect of its old age and decline. The qualitative difference
expresses itself in two major developments:

1. The cyclical factors of recovery, while still working, no longer
work freely and efficiently: they are now hampered by all the "con-
trols" of "organized" or monopoly capitalism, intensifying the depth
of depression and postponing recovery.

2. The non-cyclical factors of long-time economic expansion are
measurably exhausted (within the relations of capitalist production) :
they no longer contribute to quick recovery and an upsurge of
prosperity.

In every depression a combination of cyclical and non-cyclical factors
is necessary to initiate recovery and invigorate prosperity. They permit
the revival of production by providing the conditions for the accumu-
lation of capital on an ascending scale. Although they react on one
another, the two factors are independent. They are, moreover, affected
by structural economic changes and the prevaiHng stage of capitalism.
And where the factors do not combine in the right proportions, accu-
mulation is limited and recovery and prosperity are incomplete.

The cyclical factors of recovery depend primarily upon the free play
of economic forces. This restores (on a lower level) the equilibrium
whose disturbance engendered crisis and depression. The process, as we

460

Prosperity and Capitalist Decline 461

have seen, takes the form of liquidation, which "eases" the dispropor-
tions created by excessive capital and capital claims, production, prices,
and profits. Most important is the depreciation o£ capital and capital
claims: their multiplication during prosperity determines the coming
of crisis and depression, for the burdens they impose upon purchasing
power, prices, earnings, and accumulation cannot be supported by pro-
duction and consumption. Depreciation of capital and capital claims
eventually sets in motion the cyclical forces of recovery.* The weaker
enterprises go bankrupt and the stronger write down capital assets and
values. Limitation of production and depreciation of values reduce
capital claims; this makes more profitable operation possible for the
efficient survivors, within the restricted limits. Prices, particularly the
prices of materials and labor, fall to a level where they encourage buy-
ing and producing. The output of capital goods moves upward, stimu-
lated partly by the fall in prices but mainly by the pressure of unpost-
ponable replacements and the efforts to increase the productivity of
labor with more efficient equipment to offset the lower level of prices
and profits. Production, employment, purchasing power, and consump-
tion begin to rise because accumulation and the rate of profit rise. The
stage is set for an upsurge of prosperity.

The working of the cyclical forces of recovery was substantially, if
not wholly, free in the epoch of competitive capitalism. But capitalist
production, which needs flexibility to "solve" contradictions and re-
spond to new conditions, increasingly develops elements of inflexi-
bility. These elements are interlocked with industrial concentration
and monopoly: with large-scale industry, increasing specialization and
immobility of productive capital, constantly higher fixed costs, control
over markets and output, comparatively rigid and disproportional price

* "Crises are always but momentary and forcible solutions of the existing contradic-
tions, violent eruptions which restore the disturbed equilibrium for a while. . . . The
equilibrium is restored: by making more or less capital unproductive or destroying it.
The principal work of destruction would show its most dire effects in a slaughtering
of the values of capitals. . . . The fall in prices and the competitive struggle would
have given to every capitalist an impulse to raise the individual value of his total
product above its average value by means of new machines, new and improved working
methods, new combinations, which means to increase the productive power of a certain
quantity of labor, to lower the proportion of the variable to .the constant capital. The
depreciation of the elements of constant capital [in addition to wage reductions] would
be another factor tending to raise the rate of profit. . . . The stagnation of production
would prepare an expansion of production, within capitalist limits. In this way the cycle
would be run once more . . . under expanded conditions of production, in an ex-
panded market, and with increased productive forces." Karl Marx, Capital, v. Ill, pp.
292, 299.

462 The Decline of American Capitalism

structures, and the accumulation o£ reserves to offset the vicissitudes
of the market. The capitalist system becomes both less responsive to
changes and more sensitive to disturbances under the "controls" identi-
fied with the growing elements of inflexibility. They intensify the
instability of prosperity (particularly as they are involved with the
higher composition of capital, which lowers the ratio of labor and
wages to capital and output, and aggravates the antagonism between
production and consumption). They tend to deepen and prolong
depression because the "controls" interfere with the free play of the
cyclical forces of recovery,''^ prevent the "easing" of disproportions and
create new ones. As accumulated financial reserves permit payment
of fixed costs and even dividends, monopolist combinations are able
to resist the destruction or depreciation of capital; and they resist the
fall of prices because of control over competition and markets. Where
monopolist combinations go bankrupt, the enormous fixed capital in-
vestment prevents their going out of business. Its control of markets
and prices makes monopoly measurably independent of the compul-
sion to increase productive efficiency, and lessens the demand for capital
goods. As monopoly maintains artificially high prices for materials
used by other producers, it hampers their resumption of production on
an enlarged scale. The price policy of monopoly, while it does not in-
crease production and employment in its own field, tends to decrease
them in other fields. "Unquestionably the duration and intensity of
the cyclical depression was effectively and essentially unfavorably in-
fluenced by these [monopolist] organizations." ^ Prices may, even where
no monopoly exists, lag behind necessary readjustments under the
influence of other forces. And where prices do move freely, their fall
(and the destruction or depreciation of capital) is all the greater and
more disastrous because of the lag in other fields. Thus prices, which
once were, unevenly and within the limits of more decisive underlying
forces, a "regulator" of production, now no longer perform that func-
tion or perform it more unevenly. In this, prices respond to the limita-
tion and transformation of competition under monopoly capitalism.
The result is that the cycHcal forces of recovery are checked and dis-
torted; liquidation goes on, but incompletely and disproportionately.
Depression is deepened and prolonged. The forces which sustained

* Many bourgeois economists insist that "fixed" union wages and unemployment
insurance or relief are elements of inflexibility which interfere with recovery. Unlike
the other elements, however, they increase instead of decrease consumption and
production. But they eat into profits and the income of the well-to-do. Hence the
opposition, which becomes most brutal under fascism.

Prosperity and Capitalist Decline 463

capitalist production now turn into their opposites and become its
antagonists.

During depression, the downswing of production, prices, and earn-
ings tremendously increases the burden of debt and interest, one of the
elements of inflexibility. (In agriculture, where it was impossible to
limit production and prices moved most freely, the burden of interest
became insupportable.) The Roosevelt Administration in March, 1933,
resorted to inflation to lighten the monstrous load of debt and to stimu-
late recovery by raising prices. This created new disproportions. While
the value of the farmers' interest payments was reduced, industrial
prices rose more than agricultural prices. An inflationary rise of prices
tends to raise the rate of profit by increasing money earnings and de-
creasing the value of interest payments, of other fixed costs, and of
wages. The result, however, is mainly a transfer, as earnings mount,
of corporate payments from one type of investor to another. Prices and
profits rose, real wages fell. Price disproportions were not destroyed;
relations between one group of prices and another were changed, but
prices in general tended to become more disproportional. The inevitable
result was reaction and relapse. Production rose in anticipation of
higher prices; but, with the exception of automobiles, the larger output
was mainly in semi-finished goods. By July the inflationary upswing in
production reached its limits; then production moved downward, in
spite of the NRA and manipulations of the gold content of the dollar,
until by November more than 50% of the "recovery" gains had been
wiped out.*^ Inflation feeds on itself: if stopped, reaction ensues; if con-
tinued, it holds the menace of a social-economic crash. Rising prices,
inflationary or otherwise, may stimulate production for a time, but
recovery and prosperity depend upon more substantial economic
forces. . . .

Restoring the "free" play of competition and prices is impossible. It
would, moreover, make the situation worse because of the highly com-
plex and delicate relationships of capitalism to-day. Unrestricted liqui-

* Production moved upward again from November, 1933 to March, 1934, but
regained less than half the losses of July-November, 1933. Profits rose, employment
and wages fell. In March, 1934, employment in manufactures was only 76.4% of the
1926 level and wages only 59.4%. Even the small gains from November to March
were made possible only by the fact that the government poured money into industry
at the rate of $470 million monthly: exacdy as, in Germany, the small revival which
started in the fall of 1932 was almost wholly in industries aided by grants of public
money. New York Times, April 19, 1934; John T. Flynn, "Other People's Money,"
New Republic, May 9, 1934, p. 364; Robert Arzet, "Hider Economy Calls for Low
Price System," New York Herald Tribune, May 20, 1934.

464 The Decline of American Capitalism

dation, always destructive, might now prove catastrophic. In fact, in a
prolonged depression, liquidation may, in spite of "controls" and
partly because of them, reach a point where dangers multiply. So there
is a resort to more "controls" in the form of state capitalism. But the
effect of state "controls" is almost wholly negative. While they may
temporarily prevent a more serious breakdown, they also hamper
recovery by aggravating the disproportions created by the "controls"
of monopoly capitalism. State intervention helps to maintain artificial
prices, interferes with the destruction or depreciation of capital by
granting loans and subsidies to tottering or inefficient enterprises, and
insures, in one way or another, interest payments and higher profits.
Thus the state strengthens the interference of private "controls" with
the cyclical factors of recovery. The capital structure and property
income are protected, resulting in an "inflation" of capital values and
claims out of line with the existing level of production and consump-
tion. The state's vast resources, financial and compulsive, make it pos-
sible to adopt measures which stimulate industry; but, as in the case
of the NRA, the stimulus is short-lived and ends in nervous reaction.
Nor was this a result of the NRA's incomplete state capitalism. The
"controls" of state capitalism in Germany were, up to 1933, the most
highly developed in the world, but they did not prevent the depression
or bring about recovery. Fascist "controls"? Conditions became worse
in Germany under fascism; a small revival in production, due to
Hitler continuing the state capitalist measures of former governments,
was offset by a decrease in wages and an increase in forced labor,
with an economic catastrophe as the final result. After five years of
consolidation, Italian fascism was helpless when the cyclical storm
burst in 1929-30; conditions afterward were at least as bad as in
other countries (with more of the burdens thrust upon the workers,
deprived of the right of independent organization and action).

The "controls" of monopoly, state capitalism, and fascism do not
work, or produce disastrous results, because they are a compromise
between the old and the new. They represent a departure from the
relations of capitalist production within the limits of those relations:
one interferes with the other. An aspect of this contradiction is thus
set forth by Sir Arthur Salter :

"We have, in our present intermediate position between these two
systems ["competitive" and "planning"], lost many of the advantages
of both and failed to obtain the full benefits of either. Without securing
the advantages of deliberate planning, we have enough official control
and private privilege and monopoly to impede the automatic adjust-

Prosperity and Capitalist Decline 465

ments. From this worst of both worlds we must certainly escape."^
Salter recognizes the contradiction without realizing its implications.
Something much deeper than "competitive" and "planning" systems
are involved: an objective clash between two economic systems, capi-
talist individualism and socialist collectivism. The cyclical factors of
recovery depend upon economic individualism, the basis of capitalism;
but industrial concentration means economic collectivism, an implicit
aboHtion of capitalist production within the relations of capitalist pro-
duction itself. Hence the old factors no longer work freely and effi-
ciently; repressed by economic collectivism, they are distorted by the
"controls" of monopoly and state capitalism, which are merely class-
economic efforts to overcome the contradictory and antagonistic results
of the clash between old and new forms of production.* More than

* Depression is deepened and prolonged also by imperialism, another expression of
class-economic efforts to overcome the contradictions and antagonisms of monopoly
capitalism. Imperialism makes prosperity more unstable by making it increasingly
dependent upon the world market, which becomes more unstable because of imperialist
disproportions and antagonisms. The cyclical crash of 1929-30 came first in the major
industrial nations, concurrently in the United States and Germany. It reacted upon the
world economy, particularly the agrarian lands. Where the prices of agricultural and
mineral products had been falling steadily but slowly before the crash, they now fell
sharply. The world agricultural crisis became worse. This crisis was a direct result of
imperialism, for its drive to earn profits on exported capital stimulated the production
of agricultural and mineral products beyond balanced needs, particularly as synthetic
raw materials were making highly industrial nations less dependent upon agrarian
lands. The disastrous fall in the purchasing power of these lands limited their imports.
Foreign trade experienced the greatest absolute and relative losses in history. Import
"controls" made the situation worse. Industrial production moved more rapidly down-
ward, particularly in the export industries. Countries which had been borrowing money
to pay for imports, particularly from the United States, were hit most severely, for
after 1930 the American export of capital fell to zero. In 1931 the depression was
aggravated by the world financial crisis resulting from agrarian countries suspending
payments on foreign obligations. Britain was forced off the gold standard; and while
temporarily overcome in the United States, the financial crisis burst with all the
greater fury in the spring of 1933, forcing the closing of banks and suspension of gold
payments. Underlying all these developments are the disproportions among nations in
the world market. One set of disproportions exist and develop between the highly
industrial nations (analogous to the inner disproportions between industry and industry):
they force production and exports regardless of one another. A second set of dispro-
portions exist and develop between the imperialist industrial nations and undeveloped
agrarian lands (a magnified expression of the inner disproportions between industry
and agriculture). These disproportions are not new, but they become increasingly
greater, more acute and dangerous; they aggravate the economic and political an-
tagonisms of imperialism, and deepen not only the cyclical crisis but the crisis of the
capitalist system. Capitalism is now threatened by the world market, with whose
growth it was interlocked. The forces which sustained capitalist production now turn
into their opposites and become its antagonists.

466 The Decline of American Capitalism

the problem of complex or collective economic forms calling for
"planning" are involved in industrial concentration and monopoly.
For industrial concentration, with its downward pressure on the rate
of profit because of the higher composition of capital and its results,
tends to ma\e capitalist production unprofitable. The new collective
forms of production are not merely a negation of capitalist indi-
vidualism, they are a negation of profit itself. Capitalist "controls" and
"planning" are, however, an effort to insure profit and accumulation,
whose limited conditions are the cause of the crisis. Their purpose is
not to liberate the forces of production and consumption, but to pre-
vent transformation of the new economic forms into a socialist society.
This is the crisis of the capitalist system, a direct result of the forces
underlying accumulation and concentration. . . .

Recovery is not necessarily quick and prosperity substantial if no
"controls" interfere with the cyclical factors. Comparatively few "con-
trols" existed in 1873-79, Y^^ ^he depression was both deep and pro-
longed. Recovery may be slow if the previous overexpansion, the accu-
mulation of capital, was unusually great: it takes so much longer to
liquidate disproportions and create new opportunities for accumula-
tion. But the decisive element is the action of the non-cyclical long-time
factors of expansion, which affect recovery and decide the character
of prosperity.

Whether it takes a longer or shorter time, all that the cyclical factors
of recovery can do is to restore an "equiUbrium" and set the stage for
an upsurge of prosperity. But the upsurge is not inevitable. For the
equilibrium produced by the cyclical factors is necessarily on a lower
level than the preceding prosperity. It revives the demand for capital
goods, but mainly for replacements. This increases production and the
rate of profit only on a small scale, however, as it does not permit of
an asceryling accumulation of capital, the indispensable condition for
substantial prosperity. Production, employment, and wages still remain
low, particularly as the productivity of labor rises. What is necessary
is an increasing output and absorption of capital goods made possible
by the development of old and new industries: an upswing in the long-
time factors of expansion.

The output of capital goods creates purchasing power (wages, part
of salaries and profits) which is spent on consumption goods. Produc-
tion moves upward. This permits of an increasing production and capi-
talization of surplus value, the making of profits and their conversion
into capital. In all pre-war depressions (and in the United States up to
1923) there was always a large potential demand for new capital goods

Prosperity and Capitalist Decline 467

in the unexhausted possibiHties for expansion o£ old and new indus-
tries: mechanization o£ handicrafts or incompletely mechanized
industries, building construction, railroads, agricultural machinery,
electric power, telephone and telegraph, aluminum, rayon, and many
others. These industries needed large masses of capital goods, whose
production created purchasing power and demand for other goods while
they threw no goods of their own upon the market or did so only
eventually. (Where goods were thrown upon the market but were
wholly new they did not compete with other goods, for their produc-
tion itself created purchasing power. Where "new" goods supplanted
goods formerly produced by handicrafts, the resulting diversion of
buying was more than offset by the purchasing power created in pro-
ducing the necessary capital goods.) The demand for new capital
goods was stimulated, in the case of the highly industrial nations of
Europe, by the export of capital, /. e., capital equipment, to economi-
cally undeveloped regions; and, in the case of the United States, by the
large masses of capital goods absorbed in developing the inner conti-
nental areas, particularly in urban construction, railroads, and agricul-
ture. As the output of new capital goods began to rise, its creation of
purchasing power and demand quickened the cyclical factors of re-
covery by encouraging the older industries to invest in more replace-
ments; as the output rose still higher, creating more purchasing power
and demand, the older industries were forced to invest in new capital
goods to meet the needs of larger markets. The resulting expansion of
industry as a whole was greater than the rise in the productivity of
labor, and was accompanied by higher employment and wages (often,
but not always, including higher real wages). More workers employed
meant more production of surplus value; more markets meant more
reaHzation of surplus value as profit; more output and absorption of
capital goods, which embody capitalist claims to ownership and income,
meant more conversion of profit into capital. Accumulation was active
and prosperity surged upward.

The decisive part, accordingly, was played by the non-cycHcal factors
of long-time expansion. These factors are identified with the upswing
of capitalism. But neither capitalism nor its upswing is eternal, for they
develop conditions which exhaust the long-time factors of expansion,
limit the accumulation of capital, and set in motion the forces of
economic decline.

A minor aspect of capitalist decline is the cyclical limitation it im-
poses upon replacements. In American plants, in the spring of 1934,
20% of the equipment was in a condition of primary obsolescence, but

468 The Decline of American Capitalism

there was no urge to replace it as the unused capacity was still larger,
because of the depth of the depression, the previous overexpansion, and
the disproportions created by incomplete liquidation and postponed
recovery. "Until business becomes much better," said engineers, "and
until all equipment of a plant needs to be called into production, the
installation of new machinery will lag."^ The productivity of labor
rose, but mainly as a result of the intensification of labor. Nor was the
situation much improved by NRA loans for the purchase of equip-
ment (a repetition of European experience). Replacements may start
independently of the non-cyclical factors, but only these can initiate
the substantial recovery which makes possible increasingly larger
replacements.

The major aspect of decline involves a scarcity of those long-time
factors of expansion which alone stimulate an increasing output and
absorption of capital goods. This seriously limits the accumulation of
capital. And if the conditions of accumulation are limited, recovery
must be incomplete and prosperity must be on a lower level.

Development in the older industries? But the possibilities are re-
stricted by two conditions: the low level of production and consump-
tion and the existing excess capacity. All industries are overequipped,
particularly those with the largest masses of capital equipment. . . .
The automobile industry, in 1932, had a capacity of 9,000,000 cars and
an output of 2,000,000; * it may reach the 1929 peak, but the industry
cannot become the great force for expansion it was in the preceding
years. . . . Nor can electric power repeat its 1922—29 expansion: indus-
try is almost completely electrified, the crisis in agriculture prevents
realization of its electrical needs, electrification of the railroads is
remote, and an excess capacity already exists of at least 25%, which
will be greatly increased by three power projects now nearing com-
pletion.^ . . . Railroads, one of the mightiest forces of expansion from
the 1840's to 1900, were still developing up to the World War; but in
1929 their mileage and the number of locomotives and cars were
smaller than in 1919,® absorption of capital goods being limited to re-
placements. . . . Nor is there any hope of expansion in the telephone
and telegraph industry. . . . Conditions are worse in the consumption
goods industries which depend upon mass demand, for this demand
can rise only if purchasing power is created by an increasing output
and absorption of capital goods and the resulting industrial expansion.
. . . Agriculture offers small prospects for any large absorption of
capital equipment, because of the downward movement in exports
and limitation of output: essential demand will be limited to more

Prosperity and Capitalist Decline 469

efficient replacements. . . . An upswing in building construction, in
spite of the low level of activity in the depression years, is prevented
by overexpansion, in relation to the level of business, in industrial and
commercial structures, including moving picture theatres and garages^
and by the low income of the masses (whose housing needs, if they
could be satisfied, would stimulate construction for years to come).
. . . Serious limitations, moreover, are imposed upon expansion in the
older industries by the slowing down, if not exhaustion, of industrial-
ization in new or economically backward regions.

Development in the newer or wholly new industries? But the possi-
bilities are small: no wholly new industries are in sight, most of the
newer industries are comparatively highly developed, and those which
are not are either unimportant or are hampered by general economic
conditions. . . . Radio was already overdeveloped before the depres-
sion; television is still a thing of the future, nor does it ofFer much
demand for capital goods. . . . The production of mechanical refriger-
ators and aircraft in 1929 employed only 31,590 workers, who received
$48,096,000 in wages.'^ Neither industry is apt to develop on a large
scale. And the development of air transportation can never absorb
as much capital equipment as railroads and automobiles. . . . The air-
conditioning industry, usually considered the most promising, manu-
factures a product whose use depends primarily upon a high level of
prosperity. Factories and commercial buildings will not install the
equipment if business is depressed and profits low. "The market in
the residential field is not very promising. Initial costs constitute too
high a percentage of total apartment rentals or home values except in
the highest price classes. The industry appears to contain no inherent
advantages which might cause it to run counter to the general trend
of business during the next few years." * . . . Teletypesetters represent
only a small capital equipment; the number of compositors displaced
is greater than the workers employed in their production, and this is
not likely to be ofJset by an upswing in the printing industry. . . .
Factory-built dwellings, in addition to standardizing monotony and
ugliness and creating large areas of potential slums, will result in an
enormous displacement of workers in the building trades. . . . Decen-
tralization of industry is limited by entrenched vested interests; it
makes plants obsolete and reduces railroad freight haulage, and would,
moreover, result in a lower demand for capital equipment than the
existing industrial set-up. . . . Not only are the prospects meagre of
new industries arising, it is very unlikely, if they do, that they will
absorb such large amounts of capital equipment as railroads, tele-

470 The Decline of American Capitalism

phones, electric power, and automobiles. This is a decisive factor, for
upon the amount of capital goods absorbed by new industries depends
the scope of the resulting industrial expansion.

These conditions, imposing serious limitations upon the accumula-
tion of capital, exclude the possibility of any real upsurge of prosperity.
Nor can the limitations be overcome by mere technological change.
While some urge a moratorium on invention, others urge more inven-
tion as the means to restore prosperity : contradictory counsels to escape
contradictions! Indignantly denying that science is responsible for the
crisis, and ignoring the social relations of capitalist production which
may turn beneficent science into its malignant opposite, two great
scientists stake their hopes upon invention. "Science has made jobs,
not taken them away," says Karl T. Compton, with Robert A. MilUkan
emphasizing the point: "Every labor-saving device creates in general
as many, oftentimes more, jobs than it destroys."^ This was meas-
urably true (allowing for the increase in normal unemployment) only
in the epoch of the upswing of capitalism, when technology completely
revolutionized the structure of old industries or created gigantic new
industries. The great demand for equipment stimulated the accumula-
tion of capital and industrial expansion, with a resulting increase in
employment because production rose more than the productivity of
labor. There are no immediate prospects of technological changes
developing which might create gigantic new industries requiring large
masses of capital equipment. This appeared clearly from reports at a
conference of capitalists, scientists, and educators, where the theme
was: "This country is not about to pass into a period of stagnation
which means decay," for "science will liberate mankind." ^^ But the
anticipated technological changes were all minor and in the nature of
refinements or gadgets: airplanes powered from ground stations, mov-
ing pictures in color, and radio-tape newspapers with "road maps,
fashion designs, comic strips for the children, and no end of things,
for whatever a pen can portray facsimile radio will handle." Where
fundamental changes were anticipated in the technological basis of
older industries, they would, unlike similar changes in the past, absorb
fewer capital goods than existing equipment, fewer even than mere
replacements. This difference between the older and the newer tech-
nology profoundly alters its economic significance: technology no
longer tends to revolutionize the basis of old industries or to create
gigantic new industries, with their great demands for new capital goods
and the resulting industrial expansion and accumulation.

For the immediate future, at least, technological change will mainly

Prosperity and Capitalist Decline 471

express itself in piecemeal replacement o£ old equipment with more
efficient equipment. This must necessarily mean disemployment.
Equipment is more efficient and profitable only if it is labor saving,
if its use displaces more workers than are employed in its production.
Displacement was mainly relative in the epoch of the upswing of
capitalism because the curve of production and accumulation was
upward: displaced and newly available workers were absorbed by
expansion in the output of capital goods and, consequently, the ex-
pansion of industry in general. Displacement is absolute in the epoch
of decline because the curve of production and accumulation is down-
ward: displaced and newly available workers are no longer absorbed
by expansion in the output of capital goods, which are now limited
to replacements. A prosperity based upon replacements means that
depression levels of production move upward, but not much: industry
tends to contract, not to expand. The result is disemployment, for
the productivity of labor rises more than production.*

What happens when technological progress is not accompanied by
an increase in output while the productivity of labor rises, is graph-
ically illustrated by the flour milUng industry: value output in 1923
and 1929 was the same, but workers decreased from 35,194 to 27,154
and wages from $41,704,000 to $35,409,000, while profits and overhead
costs (value added by manufacturing) increased from $162 milHon to
$188 million.^^ Technological progress and the productivity of labor
moved upward during the depression. The chemical industries strik-
ingly reduced labor costs; replacement of obsolete equipment in the
steel industry means installing a smaller number of more efficient
machines; a Diesel oil locomotive reduces hourly labor costs from
$2.75 to 99c, or 64%.^^ New equipment increasingly tends to become
apparatus and automatic machinery: the resulting higher composition
of capital lowers still more the ratio of wages to profits and overhead
costs. While, in 1929, the ratio was 36% for manufactures as a whole,
it was only 26% in blast furnaces, 19.6% in the chemical industries
(11.1% in alcohol), 19% in gas manufacture, 18.8% in flour milling,
and 11.6% in tobacco products.^^ Industry moves toward the lowest

* Agriculture also is limited to more efficient replacements, adversely affecting the
capital goods industries and the farming population itself. Formerly the results of the
intensive development of agriculture — higher productivity of labor and displacement —
were offset by extensive expansion in territory and markets. The slowing down of this
expansion and increasing productivity in 1920-30 displaced nearly 1,000,000 persons
from the farms. Now displacement is accelerated by the deliberate or "planned"
limitation of output. The small and poorer farmers, the American peasants, must bear
the burdens.

472 The Decline of American Capitalism

ratios of labor to capital and of wages to profits and overhead costs.
The other aspects of this movement, of the constantly higher compo-
sition of capital, is the absolute displacement of labor on a large scale
unless it is offset by an accelerated accumulation of capital and in-
dustrial expansion, in which the basic factor is an increasing output
and absorption of capital goods. Accelerated accumulation is excluded
by the conditions of capitalist decline. The situation is aggravated,
moreover, as industry lowers costs more and more through scientific
management (mainly the intensification of labor) and rationalization.
This means that a smaller quantity of labor and wages sets in motion
the same quantity of fixed capital and a larger quantity of raw ma-
terials resulting in a higher composition of capital without the com-
pensation of an absorption of new capital goods. The productivity of
labor rises more than production. Disemployment must increase.

Efforts to stimulate the output and absorption of capital goods were
largely unsuccessful, in spite of government loans for equipment and
NRA ballyhoo to create credit expansion by forcing bankers to lend
and producers to borrow. (As if ballyhoo can overcome the iron pres-
sure of economic conditions!) The NRA, moreover, contradicted itself:
it urged modernization of plants, yet many of the codes provided for
the prevention of excess capacity. This "planned Hmitation of out-
put" policy, characteristic of the NRA and other forms of state capital-
ism, necessarily means a lower output of capital goods. It may yield
a higher rate of profit, but at the cost of lower production, employment,
and wages.

More important were the efforts to stimulate building construction
by means of a program of public works. All the arguments for public
works make their starting point the fact that the curve of demand for
capital goods is downward and that industry cannot revive by its own
efforts: clear indications of capitalist decline! "The policy of public
works," according to one economist, "is in accord with economic
laws, except that the initiative of private enterprise for long-term in-
vestments is replaced by an act of the stater But he simultaneously
points out the limiting conditions: "The public investments must first
be supported and later replaced by private investments, or the recovery
will not develop into prosperity!' ^* Accumulation of capital is the basis
of prosperity. In the past construction was an important factor in the
upsurge of prosperity because it represented an accumulation of capital
and was identified with long-time factors of expansion. Public works
are not, however, essentially an accumulation of capital; this makes
them objectionable to the capitalists, particularly if they are self-

Prosperity and Capitalist Decline 473

liquidating and compete with existing facilities. If the costs of public
works are met with issues of bonds, they represent a piling up of
capital claims, which are a burden upon government revenues, pro-
duction, and profits; if with immediate taxation, the situation is worse
from a capitalist angle, for not even capital claims are piled up. And
inflation as means of payment is dangerous. Public works can aid
recovery only if the stimulus they create is invigorated by the work-
ing of long-time factors of expansion. But it is because these factors
are not working that governments resort to public works.

A program of public works might serve useful economic and social
ends. But they increase taxation : hence the opposition. The opposition
is most bitter where the projects are self -liquidating, and particularly
if they are dwellings for the masses. Yet at least half the people
need better housing, even on the basis of existing low standards of
"decency." It is an accumulated deficiency, not simply a result of the
depression. "American housing, ever since the period of industrializa-
tion, has never reached the lower half of the income groups except
in the form of low-grade, inferior dwellings, slums in conception as
well as final result." ^^ The Public Works Administration low-cost
housing program, inadequate as it was, was virtually abandoned be-
cause of bitter opposition by realty interests. Two conditions are
necessary to insure better dwellings for the masses: a substantial gov-
ernment subsidy or a substantial rise in wages, or both. Subsidy is
opposed by realty and other property interests: it would mean more
taxation and make existing "homes" obsolescent and unprofitable. And
wages are sinking, not rising: embattled capitalist interests ruthlessly
oppose substantial wages because they lower the rate of profit. The
situation is hopeless: if the workers were unable to secure "decent"
housing in the epoch of the upswing of capitalism, the chances are
worse than negligible in the epoch of decHne. Where there is some
slum clearance, the new houses are beyond the paying capacity of the
workers.

Public works degenerate into mere reUef schemes and are whittled
down to a minimum. Cash relief is replaced by low-paid forced labor.
The Civil Works projects were mainly waste: private business interests
objected to the competition of useful projects. Of the money voted for
public works, $238 million was diverted to naval construction (in ad-
dition to direct naval appropriations in 1929-33 of $235 million), ^^
while housing for the masses was neglected. The Civilian Conservation
Corps enrolled 290,000 persons to work in the national forests at
nominal wages: an American equivalent of the German "labor

474 The Decline of American Capitalism

armies," whose workers "get their keep but little or no wages." ^^
In both cases, moreover, definite miHtarization is involved: prepara-
tion of the youth for coming slaughters. Actual public works tend to
become public buildings and "luxury" highways. This assumes its
most revealing and brutal forms under fascism. Of Italian develop-
ments one bourgeois observer says:

"Fascism has to its credit no great housing schemes to relieve con-
gestion and provide better homes for the working classes. . . . Slum
areas have been cleared in order to make room for grandiose concep-
tions such as the great boulevard running from the Capitol to the
Coliseum in Rome or the new park at Santa Lucia in Naples, but no
real provision has been made for rehousing the population displaced.
In this respect fascist history is one of unrelieved indiiference and
brutaHty. . . . Fascist architectural achievements are to be found in
such things as exhibition buildings, palaces for the industrial and other
corporations, squares in the principal cities where the fascist leaders
can have an auditorium sufficiently large for their eloquence, innumer-
able post-offices . . . railway stations . . . decoration to the material-
istic and brutally imperialistic system of fascism." ^^

Nor is this the devil's work of lesser breeds outside the law of an
"exceptional" American civilization: it appears clearly, and still more
clearly in its ominous implications, in the policy and activity of the
Public Works Administration. . . .

The decreasing demand for capital goods is strongly afifected by the
slowing down of industrialization in new, economically undeveloped
regions and the downward movement in population growth. The
importance of the extensive expansion of capitalist production is evi-
dent in the enormous demand for railroad, building construction, and
agricultural equipment created by development of the inner conti-
nental areas of the United States. Population growth provided an in-
creasing mass of exploitable workers and consumers. Development of
new regions absorbed increasing masses of capital goods, created new
purchasing power and markets, and stimulated expansion in the older
industries. Accumulation and production moved upward. Now the
downward movement in population growth limits the number of
exploitable workers and consumers. The slowing down, if not ex-
haustion, of industrialization in new regions restricts the movement
of expansion, particularly in the construction and service industries
which absorb large masses of capital but throw no goods upon the
market. The result is a falling output of capital goods. Accumulation
is Umited. Prosperity is depressed.

Prosperity and Capitalist Decline 475

This slowing down of extensive expansion represents an exhaustion
of progressive economic forces.* But only on a capitalist basis. For there
are regions in the United States, and still more in the world at large,
which lag woefully behind economically: another expression of the
uneven development of capitalism. They need construction, electric
light and power, transportation facilities, industrial plants. These
developments are now hampered, however, by the conditions of in-
tensive capitalist expansion, involving the inner relations under which
surplus value is produced and realized.

The extensive expansion of capitalist production stimulates the devel-
opment of large-scale industry and wider markets. Large-scale in-
dustry, with its higher productivity of labor, permits an increasing
production of surplus value. Wider markets permit an increasing
realization of surplus value as profit. The result is an intensk>e ex-
pansion of capitalist production, /. e., a constantly higher composition
of capital, which constantly lowers the ratio of labor to capital and of
wages to output, overhead costs, and profits. The gap becomes greater
between production and employment and production and consump-
tion. For capital claims mount. An increase in production absorbs
fewer and fewer workers, until displacement is absolute. Relative
wages, the share of labor in the proceeds of industry, become smaller.
Markets and output shrink, excess capacity mounts. The production
and realization of surplus value move downward.

Under these conditions it may be unprofitable to industrialize par-
ticular regions or to establish particular industries in those regions.
Such development was easier in the past, when industry had a lower
composition of capital, with lower capital claims, greater labor needs,
and higher relative wages. Now the higher composition of capital
means only a small employment of workers and only a small distribu-
tion of mass purchasing power. The creation of markets may be in-

• Exploitable workers and consumers are further limited by the mass disemployment
characteristic of capitalist decline. It is an ironical comment on the Malthusian "law"
that the surplus population of unemployed and unemployable workers assumes increas-
ingly larger proportions precisely when population is moving downward and agricul-
ture is choked by its own surplus. It is not a problem of the pressure of population
upon limited means of subsistence. It is a problem of the pressure of comparatively
unlimited means of subsistence upon production, price, and profit. The abundance of
means of subsistence, a result of the higher productivity of labor, tends to force down
prices and profits: hence production is limited and disemployment and the surplus
population increase. Every mode of production has its own law of population. But in
no mode of production except the capitalist does the development and productivity of
industry create a surplus population.

47^ The Decline of American Capitalism

sufficient and excess capacity prove disastrous. (Industrialization may
be hampered, moreover, by the fact that it offers ruinous competition
to the older regions.) These limitations apply to many undeveloped
regions in the United States. They apply still more to colonial and
other economically undeveloped lands: industrialization is backward
and disproportional partly because of imperialist exploitation, partly
because the high composition of capital, with its insufficient creation
o£ employment and mass purchasing power, prevents the development
of many large-scale industries on a capitaUst basis.''^ (The limitations
are overcome, in the case of construction and service enterprises, by
making payment on capital claims with exports o£ foodstuffs and raw
materials; overexpansion results, however, and not only creates a dis-
proportional economy, but is responsible for the world crisis in agri-
culture and mining.) In the epoch of the upswing of capitalism, ex-
tensive expansion stimulated intensive expansion; they react upon
and limit one another in the epoch of decline.

The downward movement in capitalist expansion means a decreasing
output o£ capital goods. But capitalist production depends upon an
increasing output. Hence accumulation is limited. Prosperity is de-
pressed. The results are lower production, mass disemployment, and
falling wages for the workers, a sharpening of the permanent crisis
in agriculture, contraction of opportunities for professional people.
It means lower standards of living for the majority of the population.

While recognizing the importance of capital goods, some bourgeois
economists insist that a decreasing demand may be offset by a new
equilibrium. One of them says:

"There is danger of overstressing capital formation and o£ reaching
the erroneous conclusion that full employment of the factors of pro-
duction is quite impossible without forever elongating the process o£
production. If it should turn out that new investment on any con-
siderable scale should not be in the picture for some years ahead, we
may expect revival to be delayed. But there is no reason to doubt that

* These conditions, if Russia had not overthrown capitalism and had been drawn
within the orbit of capitaUst decline, would have severely hampered industrialization.
Instead, under the dictatorship of the proletariat, industrialization proceeds more
rapidly than was the case in capitalist countries (emphasized during the depression
by falling capitalist output and rising Soviet output) because of the socialist relations
of production: abolition of private ownership and profit and the resulting planned
economy. Only socialism can assure free, rapid, and proportional industrialization in
colonial and semi-colonial countries, where imperialist domination, moreover, trans-
forms the struggle of workers and peasants into a struggle against capitalism.

Prosperity and Capitalist Decline 477

the shift can eventually be made to a new balance in which production
[capital] goods industries would be relatively less significant." ^^

What is, however, the "overstressing o£ capital formation" but an
admission that the accumulation of capital is the driving force of
capitalist production? Accumulation on an ascending scale is possible
only by "elongating" the process of production: more production and
realization of surplus value, more conversion of profit into capital by
means of an increasing output and absorption of capital goods, the
embodiment of capitalist claims to ownership and income.

The contradictions, antagonisms, and crises produced by an ascend-
ing accumulation of capital are all aggravated by a descending ac-
cumulation. For capitalist production cannot stand still: it must move
up or down.

What becomes of the unemployed workers under the conditions of
a "new balance in which the capital goods industries are relatively less
significant"? According to one bourgeois observer: "The manufacture
of machinery and industrial equipment and the construction of new
plants of all sorts have always employed so large a proportion of the
American population that no ordinary reduction in hours could get
them reemployed." ^^ Capitalists oppose any real reduction in hours
and increase in wages, for that would decidedly lower the rate of
profit. (In spite of all the ballyhoo, the NRA codes reduced only the
very longest hours, precisely as they "raised" only the very lowest wages.
Of 393 codes, all but 29 call for weekly hours of forty or more, up to
fifty-four.^^ The average was probably forty-five hours up.) If the
workers are unemployed, they produce no surplus value. Nor do they
consume much. This means a contraction of employment in the con-
sumption goods industries, with smaller production and realization of
surplus value. The rate of profit moves downward. Within the "new
balance in which capital goods industries are relatively less significant"
the falling rate of profit is no longer offset by an increasing accumula-
tion of capital; as intensive expansion still goes on, resulting in a con-
stantly higher composition of capital and more downward pressure on
the rate of profit, conditions arise tending to abolish profit altogether.

The tendency of capitaUst production to abolish profit arises out of
the accumulation of capital itself, in the conditions under which surplus
value is produced, realized as profit, and converted- into capital. It is
interlocked with the higher productivity of labor and the abundance it
creates or is capable of creating.

Accumulation, the making of profit and its conversion into capital, is
the driving force of capitalist production. Profit is realized surplus value.

47^ The Decline of American Capitalism

Surplus value is unpaid labor, the appropriation of a surplus product for
which the workers get no payment. Capital is profit converted into
capital goods, whose ownership embodies capitalist claims to income.
More surplus value is produced by increasing the amount of unpaid
labor of the workers, more surplus value is realized as profit by the
expansion of markets, and more profit is converted into capital by in-
creasing the proportion of workers engaged in producing capital goods.
Observe, however, the contradictions and antagonisms inherent in the
process of accumulation :

An increase in surplus value (other than by exploiting more workers)
is achieved by raising its rate, i.e., lowering the amount of paid labor, or
wages, incorporated in a commodity. This means a higher productivity
of labor, involving a higher composition of capital: relatively fewer
workers receiving smaller relative wages set in motion a larger quan-
tity of equipment and raw materials and produce a greater output of
commodities.

The expansion of markets, necessary for an increasing realization of
surplus value as profit, is accompanied by lower prices and higher
profits. This is accomplished by lowering the values of commodities,
decreasing the total amount of labor incorporated in a commodity
while increasing the unpaid labor, or surplus value. But one result is
a relative limitation of consumption among the workers, who numeri-
cally become a constantly more important factor in the market.

The conversion of profit into capital means an increasing output and
absorption of capital goods. This throws a constantly greater mass of
commodities upon the market. As the productive forces of society move
upward, however, the forces of consumption move relatively down-
ward. An excess capacity is created, bound up with the higher compo-
sition of capital, and results in the tendency of the rate of profit to fall.

A falling rate of profit is overcome by an accelerated accumulation
of capital, involving an increase in the rate (and mass) of surplus
value, a lowering of the values or prices of commodities, and an ex-
pansion of the market. But as this means a still higher composition of
capital, the final result is an intensified downward pressure on the rate
of profit.

The movement is animated by the tendency of the forces which
sustain capitalist production to turn into their opposites and become its
antagonists. There are recurrent cyclical crises and depressions, eco-
nomic breakdowns which represent a relative inability of production
to develop further on a capitalist basis. The breakdowns are overcome
by accumulation on an enlarged scale. But the moment comes when

Prosperity and Capitalist Decline 479

this is no longer possible: the conditions of accumulation are increas-
ingly limited, as every recovery and upward movement of prosperity
mean a still higher composition of capital and an aggravation of the
contradictions of accumulation. The relative inability of production to
develop further on a capitalist basis tends to become absolute.

This is the basic contradiction: The more productive labor becomes
and the more abundant the commodities it produces, the more im-
portant are the workers for the market. But the higher productivity
of labor, because of the higher composition of capital, is accompanied
by constantly lower relative wages and the displacement of labor: the
consuming power of the workers shrinks as the output of industry
mounts.

The contradiction was partly and temporarily overcome as long as
there was an increasing output of capital goods and the accompanying
industrial expansion. A constantly larger proportion of workers was
engaged in the production of capital goods, the capitalization of sur-
plus value and profit. The consumer demand of these workers created
other demand and stimulated the consumption goods industries. Ac-
cumulation moved upward and the fall in the rate of profit was
measurably overcome. But this is altered by the decreasing output of
capital goods, resulting from exhaustion of the long-time factors of
expansion, the limitation of mass consumption, and a highly developed
industry which cannot profitably use all its existing capacity. Produc-
tion, realization, and conversion of surplus value are limited. Accumu-
lation moves downward and the rate of profit tends more sharply to
fall.

Now the movement assumes catastrophic forms. Displacement of
labor becomes absolute and the surplus population grows. The falling
rate of profit was overcome by an accelerated accumulation of capital;
this involved an increase in the rate of surplus value, or raising the
degree of exploitation of the workers, and an increase in the mass
of surplus value, or exploiting constantly more workers. As industry
employs fewer workers the mass of surplus value must decrease, for
there are limits to an increase in the rate of surplus value. Disem-
ployed workers produce no surplus value and limit the accumulation
of capital. The tendency of the rate of profit to fall is no longer over-
come by more production and realization of surplus value. Not only
does the rate of profit move downward disastrously, but, still worse,
the mass of profits tends to shrink.

Underlying the whole process of accumulation, with its increasingly
abundant output of industry, is a lowering of the individual values of

480 The Decline of American Capitalism

commodities, as a decreasing amount of labor is incorporated in their
production because of the higher productivity of labor. Prices tend to
become unprofitable, a result of the capitalist drive to increase output,
sales, and profits by lowering values and prices. Output, actual or
potential, becomes so great that it can be absorbed only by a great
increase in consumption, particularly among the workers. But the
workers are largely excluded because the abundance is a creation of
the higher productivity of labor, which is interlocked with higher
capital claims, lower relative wages, and the displacement of labor by
mechanical equipment. The whole tendency of capitalist production
is to displace workers who consume with mechanical equipment which
does not consume. But who is to consume the abundance? The equip-
ment does not. The workers cannot, because of low wages and dis-
employment.* For the workers to consume more is unprofitable: it
means more employment and higher wages, and offsets the "economy"
of displacing labor with equipment. By its greed for surplus value
capitalist production develops the conditions which increasingly ma\e
surplus value unrealizable as profit. The pressure of abundance, actual
or potential, breaks down prices and makes them unprofitable. The
rate of profit moves downward disastrously. Capitalist production re-
acts against abundance and resorts to "planned limitation" of output.

This is the crisis of the capitalist system, arising out of its economic
law of motion: the accumulation of capital. For the more it proceeds
the more accumulation limits the conditions of its being. The more
capitahst production drives after surplus value the more its production
becomes limited. The more capitalist production drives after profit
the more it becomes a will-o'-the-wisp. The more capitalist production
drives after the realization of surplus value as profit and the con-
version of profit into capital, the more accumulation tends to move
downward. It is the final expression of the fact that the forces which
sustained capitalist production now turn into their opposites and be-
come its antagonists. . . .

As, from the viewpoint of distribution, the crisis of the capitalist
system appears as a crisis of consumption, the liberals cry: "Release
the forces of consumption! Let the people consume!" Their argument
is thus tersely expressed:

* The workers are the fundamental factor in this problem of consumption, precisely
as production itself is fundamental. Only a release of the forces of consumption among
the workers can release these forces among the farmers and the useful functional
groups of the middle class. This is the direct opposite of the situation in the epoch
of the upswing of capitalism.

Prosperity and Capitalist Decline 481

"It seems self-evident that under the set-up of large-scale industry,
more is to be gained by the community through low prices, high
wages, and a large production at a small profit margin than by the
contrary policy." ^^

Undoubtedly. But who is "the community"? It is an aggregation of
antagonistic classes dominated by the capitalist class, whose interests
are not identical with those of "the community." They clash on all
fundamental issues. Production itself creates purchasing power, but
it can do so under capitalism only if it also creates profit and permits
its conversion into capital. Where the output of capital goods is de-
creasing and the output of consumption goods is increasing, the policy
of "low prices, high wages, and a high production at a small profit
margin" works in the direction of abolishing profit altogether. For,
at a particular moment in the development of capitalist production, a
condition arises where it is no longer possible to offset a smaller rate of
profit with a greater mass of profits, for the mass itself begins to
shrink. The capitalists realize this empirically, if the Hberals do not
theoretically. Hence the enraged opposition to the "convincing" argu-
ment of more mass purchasing power and consumption. Liberals want
to solve the problem on the basis of the relations of distribution, of
consumption, but these relations are a function of the relations of pro-
duction: under capitalism, consumption is permissible only if it yields
a profit. In order to maintain profit, capitalism represses not only the
prevailing abundance, it represses still more the potential abundance
inherent in industry. The struggle to release the forces of consump-
tion is necessarily a class struggle against the class-economic relations
of production based upon private ownership and profit.

For the "crisis of abundance" involves a struggle between an old and
a new social order: capitalist individualism and socialist collectivism.
While consumption under capitalism is still individual, production has
become collective. But collective or social production has so enor-
mously increased the productivity of labor and of industry that its out-
put can be absorbed only collectively, by the socialization of consump-
tion. This is the objective basis of socialism. Only a practically "free"
distribution of products, made possible by the abolition of private own-
ership and profit, can absorb the abundance of which industry is capable :
only production for use, not profit. The alternative is limitation of
production, mass disemployment, and starvation. And so highly de-
veloped are the social forces of production that they not only make
comparatively simple the transition to socialism, under which distribu-
tion of products is in accordance to one's labor, but socialism would

482 The Decline of American Capitalism

speedily move into communism, under which distribution is accord-
ing to one's needs.* For the basis of communism is an economy where
labor has become a minimum in comparison with the mechanical
equipment of production, with the resulting abundance and leisure
freely and fully consumable by all the people. . . .

Capitalism and its class representatives will not release the forces
of abundance and abolish profit. They can be released only by socialism
and its class representative, the revolutionary proletariat, mobilizing
its own forces and the forces of the other exploited elements of society
for the overthrow of capitalism. So capitalism resorts to the "planned
limitation" of output to preserve some measure of profit. Thus capital-
ism, the historical creator of abundance, becomes the enemy of abun-
dance. Limitation of production is the fundamental objective of the
"planning" of state capitalism (and fascism). This appears clearly in
the NRA, which permits, in the words of the Cotton Textile Code,
"appropriate steps to keep production in reasonable balance with de-
mand." ^^ Every now and then the mills close down to maintain prices
and profits. There is no poHcy to stimulate and realize demand. Work-
ers are thrown out of work because of the abundance their labor
creates.

The results of "planned limitation" of output are disemployment,
falling wages, and mass misery. Discontent and class action are
aroused among the workers (and other exploited elements, potential
allies of the workers) . Repression is, accordingly, another fundamental
objective of state capitalism (and fascism) : to prevent class action and
its development into a revolutionary struggle for the overthrow of
capitaHsm. This appears clearly in the NRA, which started with the
most liberal pretensions and proceeded to deflate labor: to permit the
imposition of company unions and of a more centralized authority of
the capitalists over the workers, to prevent and break strikes, and to
prepare for compulsory arbitration. These developments, and their
promise of sterner repression to come, are aspects of the struggle for
power arising out of the crisis of capitalism.

Nor is a potential revolt of the masses the only danger. For limita-
tion of production is a desperate shift and results in an enormous

* Socialist construction in the United States, after the conquest of power, would be
much easier than in the Soviet Union, which inherited a very backward economy.
History thrust a twofold task upon the Bolsheviks. They were compelled to concentrate
upon industrialization (accomplished by capitalism itself in the more highly developed
countries) simultaneously with the development of socialist relations. This enormously
complicated the problems of socialist construction. The other great complication is the
Union's isolation in a world of capitalist states.

Prosperity and Capitalist Decline 483

aggravation of the contradictions and antagonisms inherent in the
capitahst economy. Conflicts within the bourgeoisie become sharper-
over prices and competition, over foreign trade poHcy. Agriculture and
industry clash more sharply. The limited conditions of production and
consumption, and of profit making, exclude the possibiUty of all cap-
itals surviving. Destruction and depreciation of capital proceeds on an
unparalleled scale: an essential condition of a higher rate of profit
where the mass of profit tends to shrink. The smaller enterprises are
hit hardest, and concentration and monopoly grow, but the larger
enterprises do not wholly escape. A new equilibrium is created, a
depressed prosperity with lower production and mass disemployment.
It is an extremely unstable equilibrium. The rate of profit tends
more sharply to fall, as it is maintained primarily by price-fixing and
other measures which limit production and consumption. Because
of its pent-up forces the capitalist economy becomes more explosive.
Strangling in the abundance of which its productive forces are capable,
capitalism struggles more desperately for expansion in foreign markets
to absorb surplus goods and capital.

It is the pressure of abundance inherent in large-scale industry and
its tendency to aboHsh profit which force capitaUsm to expansion in
foreign markets. This disposes of all the arguments for a "closed
economic system" or AutarJ^ie. As capitalism is strangling in its own
abundance, it must export goods and capital to preserve profit and the
rate of profit, to survive as a system. A "closed" economy would ag-
gravate all the contradictions and antagonisms of capitalist production,
tend more strongly to abolish profit. ("There are no reasons to think,"
says an American advocate of Autarkic, "that the world will not get
along at least as well under such an economic system as it did under
international capitalism, although the transition will probably be ac-
companied by a lowering in the standards of life of vast numbersTY^
A "closed" system, moreover, under the conditions of the world to-
day, particularly if it takes the form of, e. g., self-sufficiency within the
British Empire, is an act of aggression against other nations. It is,
finally, as reactionary as limitation of production, the alternative to
socialization of consumption: for the alternative to capitalist "inter-
nationalism" is not an impossible or stagnant Autarl^ie, but the co-
operative, creative internationalism of sociaHsm and communism.

But a "closed economic system" is incompatible with capitalist ex-
pansion, and expansion is imperative. So the nations resort to an
intensified struggle for foreign markets. . . . Fascist Italy forces lower
living standards upon the masses of workers and peasants (and lower

484 The Decline of American Capitalism

bourgeoisie) to stimulate exports. While the people eat less bread,
wheat is exported. . . . Fascist Germany rejects Autarkic and struggles
desperately against economic isolation. A foreign trade council is set
up, exports are stressed and subsidized, and living standards among
the mass of the people are forced down to stimulate exports. . . .
Both Italy and Germany prepare for imperialist conquests, which are
urged as indispensable to national well-being. . . . Britain and Japan
engage in an open trade war, with the active participation of the
governments; other trade wars go on, become fiercer, create the con-
ditions of resort to arms. . . . The struggle for foreign markets is
accompanied by more protection of the home markets: capitalist na-
tions want to sell more than they buy.^^

The United States pursues a similar policy. ... At first the measures
of the Roosevelt Administration, concentrating on the home market,
were greeted as steps toward the "new era" of a "closed" system. But
these hopes were rudely shattered when depreciation of the currency
was used to strike at Britain and France, the most brutal form of
waging trade wars. . . . The next stage was marked by concentration
on Latin America and the Montevideo Conference, directed primarily
against Britain. It was a conference of economic vassals dominated by
the United States: protests by the Cuban and Mexican delegations
were disregarded. This stage was marked by adoption of NRA codes
exempting exports from the provisions for "fair" competition, by the
demands upon Congress to protect "American manufacturers from
the more intense competition of Japan in Latin-American markets and
in the PhiHppines," by the recognition that limitation of output in
agriculture is no compensation for foreign markets and the American
demand for larger wheat export quotas under an international agree-
ment, by more protection of the home market and measures to
strengthen the powers of the President for waging tariff wars.^^ . . .
The third stage in the development of the Roosevelt Administration
was the emergence of a sharper imperialist policy, marked by a chal-
lenge to Japan over the exploitation of China and the deliberate use
of the NRA to strengthen war preparations.

Expansion in foreign markets to-day is necessarily entangled with
imperialism. The conviction is prevalent in reactionary circles, and it
may yet develop the "liberal" and "labor" ideology of social imperialism,
that imperiaUsm is the only solution of the American crisis, the only
means of restoring prosperity. But the general crisis and decline of
capitalism must necessarily limit the development of American im-
perialism. Other capitalist nations are imperialist and rivalry is in-

Prosperity and Capitalist Decline 485

tensified in the struggle for a redivision of the world, while the inter-
national long-time factors of expansion are restricted by imperialism
itself. International communism and the Soviet Union are world
powers, thrust across the path of imperialism. The magnitude of the
American economy requires a tremendous imperialist expansion seri-
ously to affect prosperity under the conditions of decline. Pre-war
Britain exported up to 50% of its capital and derived nearly 10% of
its national income from overseas investments; the United States, in
1923-29, derived not much over 1% of its national income from foreign
investment and exported less than one-sixth of its capital.^^ Consider-
ing the world situation, it is impossible for the American export of
capital, particularly as it becomes mainly an export of interest, to de-
velop on a scale sufficiently large to stimulate an upsurge of prosperity.
All imperialism can accomplish is to raise the rate of profit of some
monopolist combinations, to aggrandize the financial oligarchs, to
prolong the agony of a dying social order and prevent the birth of a
new order. The price? Mass disemployment and starvation, if on a
slightly lower level, the oppressive burdens of increasing armaments,
and the barbarism of a new and greater world war: all strengthening
the elements of economic and cultural decline and decay.

The decline and decay of capitalism do not exclude a revival of
prosperity. For the cyclical movement goes on and contradictions are
still "solved" by the alternation of prosperity and depression. But on a
lower level: prosperity is more incomplete than formerly, accompanied
by limitation of production and disemployment, developing swiftly
toward a new crisis, while depression is more prolonged and grinding.
As in post-war Germany, the upswings are shorter and the down-
swings longer. The tendency is toward a condition of chronic depres-
sion, interrupted by fitful revivals of prosperity. Cyclical fluctuations
"irritate" and exhaust capitalism, intensify the crisis and decay of the
system : for cycles are now an aspect of decline and not of growth.

Nor do the decline and decay of capitalism exclude all possibiUty of
growth. There were elements of decline in the upswing of capitalism,
but the general tendency was upward; there are elements of growth
in the decline of capitalism, but the general tendency is downward.
Decline and growth do not exclude each other, said Lenin in 1916:
"In the epoch of imperialism, now one, now another of these tend-
encies is displayed, to a greater or less degree by certain branches of
industry, by certain strata of the bourgeoisie, and by individual coun-
tries. As a whole capitalism is growing more rapidly, but not only is
this growth becoming more and more uneven, the unevenness is also

486 The Decline of American Capitalism

showing itself in particular in the decay of the countries which are
richest in capital (such as England) ."^^ The forecast is more than
fulfilled, with changes which emphasize its truth. Now capitalism is
declining more rapidly, with growth becoming more rare and uneven.
Now decline and decay are most clearly manifested by American
capitalism, the mightiest in the world, which in the pre-1929 post-war
period experienced an upsurge of prosperity (with, however, the ele-
ments of decline developing on a potentially large scale, most clearly
apparent in the absolute displacement of labor and the growth of
normal unemployment). More than ever is it a case of dog eat dog.
Expansion in particular industries is primarily at the expense of other
industries: the eventual result is an intensification of the inner crisis
of the capitaHst system, because of the limited conditions of production
and consumption. Expansion of particular countries is primarily at the
expense of other countries: the eventual result is an intensification of
the world crisis of the capitalist system, because of the limited condi-
tions of imperialism to-day.

The lower level of prosperity means lower levels of employment,
wages, and standards of living. It means an increasing misery for the
masses. This conception of Marx, abandoned by his reformist "disci-
ples" and ridiculed by the bourgeois economists, is a dialetical, not an
absolute tendency: it does not move in a straight line, but contradic-
torily and unevenly. Marx himself analyzed the opposing forces
(among them the labor movement). The tendency toward increasing
misery is interlocked with the surplus population; it is inherent in
capitalist production itself, and arises out of the conditions created by
the higher composition of capital, particularly the absolute displace-
ment of labor and the lowering of wages.

The industrial revolution was accompanied by increasing misery for
the workers because the productivity of labor rose more than pro-
duction. Displacement of labor was absolute, hours rose while wages
fell, and a surplus population was created.

In the epoch of the upswing of capitalism the tendency toward in-
creasing misery was checked because production rose more than the
productivity of labor. Displacement of labor was primarily relative,
wages rose while working hours fell, and some of the worst industrial
abuses were wiped out. An offset, however, was the growing surplus
population and increasing misery in countries being industrialized and
in colonial lands.

The tendency toward increasing misery resumes its full force in the
epoch of capitalist decline, because expansion is limited and the pro-

Prosperity and Capitalist Decline 487

ductivity o£ labor moves upward while production moves downward.
Displacement o£ labor is now absolute. Disemployment and the surplus
population grow. Wages and standards o£ living fall. Starvation mounts
in the midst of abundance. Imperialist wars draw in larger masses of
people and become more destructive and agonizing. Out of decline,
decay, and misery arises the scourge of fascism, which is capitalism
using its vilest elements and means to preserve its mastery.

Increasing misery is now not only on a larger scale than in the
earlier stage of capitalism, there are qualitative differences of the ut-
most class-economic importance.

The increasing misery of the industrial revolution was accompanied
by economic progress: liberation of the productive forces of society.
It was an increasing misery limited to the industrial and agrarian
masses, and it was compatible with rising standards of living in other
classes.

The increasing misery of the decline of capitalism is accompanied by
economic reaction: repression of the productive forces of society. It is
an increasing misery not limited to the industrial and agrarian masses,
for it draws within its orbit large groups of the lower bourgeoisie, the
"white collar" workers, and the professionals: technicians, teachers,
physicians, intellectuals. Unlike the situation in earlier stages of capital-
ism, their fate is now bound up with that of the directly productive
workers.

Under the impact of all these developments, dominant institutional
and ideological relations break down. The class-economic crisis be-
comes a class-ideological crisis. Old and new clash more consciously
and aggressively. Depressions are now a revolutionary force, for they
mark another shattering of the hopes aroused by incomplete and short-
lived prosperity. Thrust into action for elemental rights and on ele-
mental issues, the proletariat and its aUies broaden their action under
pressure of the struggle itself and the opposition of reactionary forces.
Into the arena of social war is thrown the ideological influence of the
Soviet Union, where socialism is being built up while the capitalist
world sinks deeper in the mire of economic and cultural decline and
decay. As the crisis sharpens in all its aspects the struggle for power
becomes sharper: evasions and compromises avail not, it is either com-
munism and progress or fascism and reaction.

Imperialism makes the crisis and the struggle for power interna-
tional. For the crisis of the capitalist system in the highly industrial
nations affects the economically backward lands under their control.
More and more the interests of colonial lands clash with those of the

488 The Decline of American Capitalism

"mother" country. This is particularly apparent in the British empire,
a disproportion of the first magnitude, within whose limits is the
monstrous disproportion of the hegemony of Britain, which is shrink-
ing economically and politically. India struggles for independence,
Canada and Australia increasingly lean toward the United States.
Disintegration of the empire arouses the imperialist appetites of other
nations and prepares a new struggle for the world's redivision. As
capitalism declines the ruling class increasingly turns to Caesarism
(whose modern form is fascism), a system which merely levies class
tribute independent of economic function or progress: the Caesarian
or tribute aspects of imperialism are emphasized and it becomes a
major sustaining force of the new reaction. So the struggle against
capitalism is necessarily a struggle against imperialism. Colonial peo-
ples revolt against their imperialist oppressors: the "race" war, an
ideological screen for imperialism, is transformed into a class war.
Colonial revolts become part of the struggle for power in the "mother"
country: they react upon and invigorate one another, both aspects of
the world revolution.

The revolutionary struggle is international, as socialism itself is in-
ternational. The immediate forms of the struggle vary in time and
place, from colonial liberation movements to the direct proletarian
struggle for power and intermediate forms determined by the stage of
the crisis and the balance of class power; but all forms of the struggle
are unified by international communism into one offensive for the
annihilation of capitalism and imperialism, and for socialism, the
only alternative to economic and cultural decline and decay.

CHAPTER XXIV

State Capitalism, Planning, and Fascism

>L4APiTALisT production itself creates the objective basis of socialism,
within the old class-economic relations. It comprises three factors: two
economic and one class. The economic factors are the collective forms
of production (both industrial and, increasingly, agricultural) and the
abundance modern industry is capable of producing. The class factor
is the industrial proletariat, a propertiless class in physical possession
of production and the carrier of socialism.*

The objective forms of socialism are everywhere apparent in the
modern economy. Cooperative mass organization of labor within in-
dustry, collective corporate enterprise and its far-flung interests, separa-
tion of ownership and management and the collective performance of
managerial functions by hired employees: all these are objective forms
of socialism within the old relations of individual ownership and appro-
priation. This is emphasized by chain stores in distribution and large-
scale farms in agriculture, whose collective forms of activity are under-
mining what were considered the impregnable strongholds of petty
individual enterprise. Collective enterprise everywhere beats down the
individual enterprise upon which rest the social relations of capitalist
production.

The older and the newer economic relations of production are
antagonistic, an objective clash between two social orders. This clash
appears most clearly and tragically in the abundance, actual or poten-
tial, which is repressed because it threatens to abolish profit. Collective
forms of production, and their accompanying technical-economic
changes, result in an enormous increase in the productivity of labor
and the creation of abundance. The abundance makes possible and
necessary the collective or socialist distribution of goods, a socialization

* The proletariat is the typical functional class created by capitalist industry. Small
producers disappear. Industrial capitalists are replaced by financial capitalists who are
wholly predatory and by multitudes of stockholders who perform no socially useful
function. The increasing industrialization of agriculture undermines the class of farmers
and points to the day when the farmer, as farmer, will disappear. Another typical
creation are the technical, supervisory, and managerial employees in corporate industry.
But they are not a class, merely functional groups which, now dependent upon capitalist
masters, will merge into the working class under socialism.

489

490 The Decline of American Capitalism

of consumption to correspond with the objective socialization of pro-
duction. Capitalism rejects this possibility and necessity: they mean its
own abolition.

For release of the forces of consumption, its socialization, requires
expropriation of private ownership and replacement of production for
profit with production for use : new social relations of production. This
alone permits full utilization of the productive forces of society, their
development unrestricted by class interests and the contradictions and
antagonisms they create. Industry is integrated, managed as a whole,
not as scattered parts disregarding and clashing with one another. Con-
siderations of private interest or profit interfere neither with produc-
tion nor consumption. Rational planning of industry is possible, with
the exclusive aim of meeting community needs. The abundance of
industry is released on an immensely enlarged scale.*

As this means the abolition of capitalism, it is forcibly resisted by
the dominant class interests. There is no mechanical, gradual, peaceful
transition to a new social order. The objective clash of the old and the
new becomes a struggle of classes, a struggle for power between the
classes representing the old and the new.

The older relations of production are represented by the capitaUst
class, which rallies to itself all the elements of the old order. To main-
tain its ascendancy, the capitalist class must repress the forces of pro-
duction and consumption and their onward movement toward social-
ism. This throws the whole of society into convulsions, accompanied by
limitation of output, mass disemployment, and lower standards of
hving. It means economic and cultural decline and decay.

The newer relations of production are represented by the industrial
proletariat, which rallies to itself all the elements of the new order.
Its propertiless condition and collective forms of existence, and the
class exploitation with which they are identified, thrust the proletariat

* Edwin G, Nourse, America's Capacity to Produce (1934), p. 429, estimates that in
1929, by utilizing the 19% unused productive capacity and unused, or unemployed,
labor, the national income might have been increased by $15,000 million; this, if equally
distributed, meant adding $1,000, or over 50%, to the income of every one of 15,000,-
000 families receiving the lowest incomes — enough to save all of them from poverty.
But the abundance industry is capable of creating, if freed of its capitalist fetters, is still
greater, (i) Nourse's estimate of unused capacity is an absolute minimum, and it is
now, moreover, much larger. (2) Only a small part of industry was, and is, using the
most efficient available equipment. (3) Equipment is capable of still greater efficiency
by liberating and more planfully directing the technological application of science. (4)
Abundance, or its purpose, fuller and more creative living, may be augmented by
eliminating the capitalist production of useless, meretricious, and injurious products in
favor of their opposites.

State Capitalism, Planning, and Fascism 491

into objective opposition to capitalism. Among the earliest conscious
manifestations o£ this opposition is the trade-union struggle for im-
proved working conditions and the imposition of minor controls upon
the employer in the workshop. It becomes increasingly clearer, par-
ticularly as the pressure of capitalist decline weighs more heavily upon
the proletariat (and its potential allies, the other exploited elements of
society) that the class interests of the proletariat are realizable only by
destruction of the older relations of production. This means sociahsm,
of which the proletariat is the carrier: for the proletariat is the typical
class creation of capitalist production, its propertiless condition deprives
it, although in physical possession of production, of any property stake
in the existing order, and its collective forms of existence are potential
of the collectivism of socialism. But the proletariat cannot reaUze
socialism without abolishing itself as a class and along with this the
transitional state of the proletarian dictatorship: both are replaced by
the community of integrally organized producers.

The struggle for power aims to get control of the state or to retain
control. Like all states, the bourgeois state is an organ of class rule and
suppression, under capitalist control, enmeshed in all the class-eco-
nomic and exploiting relations of the existing order. No class gives up
control of the state : it must be forcibly dispossessed. Wresting control
of the state from the capitalist class makes it possible for the revolu-
tionary proletariat to overthrow capitalism and suppress the old ruling
class, to destroy the old social relations and create the new. The
dominant capitalist interests use all means, of an increasingly forcible
nature as the struggle sharpens, to retain control of the state for a
twofold purpose: to suppress the proletariat and its allies in the strug-
gle for power, and to augment the economic activity of the state, using
collective economic means to prevent a complete breakdown of the
outworn, decaying, wholly reactionary relations of capitalist produc-
tion based upon individual ownership and appropriation.

Although its ideal was "that government is best which governs
least," capitalism constantly enlarges the scope and use of state power.
In addition to suppressing the masses and carrying on war, those
indispensables of the class society which is capitalism, the bourgeois
state augments its intervention in purely economic affairs. More and
more collective state action was required by the coinplex relations and
problems arising out of capitalist expansion. The governments of most
industrial nations began to "protect" the home market and newly
developing industries. Such gigantic enterprises as the railroads called
for state intervention in the form of financial aid or government

492 The Decline of American Capitalism

ownership. Ownership came to include other enterprises for various
reasons: their unprofitable character, lack of private capital, as a source
of government revenue, in the interests of the economy as a whole, or
for reasons of political expediency (as, e. g., municipal ownership of
certain service enterprises). State intervention was often mandatory to
"reconcile" or suppress, if necessary, conflicting capitalist interests, if
their embittered clash threatened the class. The state intervened to
"regulate" and "coordinate" the relations of monopoly capitalism:
either by legislation adjusting monopolist combinations to one another
and the whole of capitalism, as in the United States; or by promoting
the formation of cartels, as in Germany. Imperialism meant increasing
state intervention, including the purely economic, to promote capitalist
expansion in world markets and the making of higher profits. Inter-
vention was also demanded by the increasing complexity of world
economic relations, for capitalist production thrust itself beyond na-
tional barriers. As individual enterprise was limited and collective
enterprise began to predominate, as expansion in particular industries
or in general slowed down, more state intervention was necessary,
either government ownership or regulation, to sustain production and
the accumulation of capital.

In the United States, which started with the most limited of gov-
ernments and is still (in spite of developing state capitalism) consid-
ered free of the "statism" of benighted Europe, the reality is expressed in
the defeat of the Jeffersonian idea of government by the Hamiltonian.
Agrarian democrats objected to state aid for industry and finance, but
not for agriculture and development of the public domain. The
American Plan of the 1820's urged legislation and public money to
aid capitalist enterprise. Government built canals and aided commerce
with other internal improvements. As industrial capitalism consoli-
dated itself after the Civil War, state powers were enlarged. Class
antagonisms became more acute and the state needed more repressive
powers. Congress was absorbed by the tariff and the grants of public
money to railroads. An economic foreign policy began to develop, for
large-scale industry needed exports. It also needed the breaking down
of state lines and concentration of power in the Federal government.
From the i88o's on, legislation concerned itself more and more with
the trusts and railroads, with "reconciling" warring groups of capital-
ists, with government commissions to "regulate" the increasingly
complex forms of economic activity and the class-economic antago-
nisms it created. During and after the 1900's the economic or "dollar"
diplomacy of imperialism flourished like the green bay tree. The

State Capitalism, Planning, and Fascism 493

Panama Canal, for which private enterprise clamored, was built by
the public enterprise and money o£ the Federal government. Theodore
Roosevelt proposed "administrative control" of industry by the Presi-
dent (anticipation of the NRA!), the merging of monopoly capitalism
and the state. The Jeifersonian Woodrow Wilson reaUzed his "new
freedom" in the form of more state intervention in economic affairs.
During the World War the government "went into business" with a
vengeance; after the war, it gave increasing subsidies to shipping and
aviation and "aid" to agriculture. Only social legislation and govern-
ment ownership were neglected : in these fields "rugged individualism"
insisted state intervention meant "the end" of the republic. "Statism"
expressed itself in an enormous bureaucracy increasingly performing
economic functions.

The term state capitalism was originally used to designate only the
government ownership of economic enterprises. But its meaning is
much wider and more significant. Government ownership is the least
developed form of state intervention in industry, particularly in the
United States, where, however, other forms of intervention are highly
developed. State capitalism includes all forms of government interven-
tion in economic activity to aid capitalism to overcome the contradic-
tions and antagonisms which increasingly torment its being. The inter-
vention is always within the relations of capitalist property and exploi-
tation, of the subjection of labor to capital. It was necessary, in the
epoch of the upswing of capitalism, primarily because the newer col-
lective forms of production called for the more collective action of the
state to "regulate" the increasingly complex and sensitive relations of
industry. The collective action of state capitalism is still more necessary
in the epoch of decUne because a crisis of the capitalist system itself
is engendered by the sharper clash between the newer collective forms
of production and the older relations of individual ownership and
appropriation. Both stages and all forms of state capitalism are an-
imated by the necessity and use of the collective action of the state to
"strengthen" capitalism and "compensate" the anarchy of production.
(But this is, of course, of a limited and predatory nature, as the state is
itself entangled in the class-economic relations involved in the anarchy
of capitalist production.)

State capitaUsm had some progressive aspects" in the epoch of
capitalist upswing. It encouraged and permitted more rapid economic
development. Petty-bourgeois and labor pressure forced the adoption
of reforms: the minor concessions of social legislation to "placate" labor
opposition, many economic measures in the interests of capitaUsm itself

494 The Decline of American Capitalism

but bitterly opposed by the more stupidly reactionary forces. These
aspects of state capitalism were greeted by many liberals and the re-
formist socialists as the progressive unfoldment of a new social order.
In reality, the result was a strengthening of monopoly capitalism and
imperialism, for the progressive measures were merely one small part
of a development which consolidated the newer forms of capitalism
and augmented the powers of its state.

Many liberals and the reformist socialists still consider state capitalism
the progressive unfoldment of a new social order. The theory envisages
an "organized capitalism" which leads from monopoly to state capital-
ism and socialism: the theory of a gradual "growing into" socialism
on the basis of the capitalist state. If state capitalism, in the epoch of
upswing, had some progressive aspects, it was because capitalist society
was still capable of progress and had need of it to maintain itself.
But monopoly state capitalism is wholly reactionary, for in the epoch
of decline capitalism is capable only of reaction and has need of it to
maintain itself.

State capitalism develops alongside of industrial and monopoly
capitalism, not as a separate subsequent stage. Where, moreover,
monopoly arose out of the underlying progressive integration of in-
dustry, monopoly state capitalism arises out of the reactionary necessity
of preserving the decaying old relations of production and crushing
the new. Production and consumption are repressed. Technological
progress is limited if not rejected. Public money is wastefully poured
into corporate industry. (The continuity of development in state cap-
italism appears in the fact that the Reconstruction Finance Corporation
was created by the "reactionary" Hoover, not the "liberal" Roosevelt;
by December 31, 1932, after eleven months' operation, it had advanced
$1,315 million to corporations, mainly banks and railroads.)^ If Con-
gress in the i86o's-7o's poured public money into the private pockets
of the railroad buccaneers, the country at least got railroads; now it
gets a small measure of relief and a much larger measure of decline
and decay. The tendency of monopoly state capitalism is more thor-
oughly to merge industry and the state, to make more direct the control
of the state by monopoly capitalism. The Iron and Steel Institute was
made the code authority under the NRA. "There is no mystery about
this code," said one magnate. "It just means that the steel industry is
going to be run as it has always been run, only more so." ^ According
to the president of the United States Chamber of Commerce, the NRA
makes industry "in some measure master of its own fate." ^ But this
is accomplished by the intervention of the state, whose powers and

State Capitalism, Plahning, and Fascism 495

bureaucracy tend toward the monstrous and all-devouring. As eco-
nomic decline is not overcome, an increasingly important aspect o£ the
tighter amalgam of monopoly capitalism and the state becomes the
preparation for imperialist aggression and war. This includes erecting
more barriers around one's own nation and breaking down the bar-
riers of others: in France they call these efforts a form of "directed
economy"!^ Of this aspect of state capitalism, that sturdy old liberal,
John A. Hobson, says:

"Staple industries will be organized with state assistance to operate
as units of production and of marketing within an empire which shall
be as self-sufficing as is practicable. Tariffs, subsidies, control of in-
vestment, joint industrial councils, and arbitration boards will be
adapted to this end. . . . An isolated British Empire, were it economi-
cally feasible, would not be tolerated by other nations. . . . The dis-
crimination now practiced against foreigners, the earmarking of im-
perial raw materials and markets for exclusive imperial use, are
already arousing indignation in foreign trading circles accustomed to
free access to these resources. Our empire possesses something like a
monopoly of certain raw materials — tungsten, for example — which are
essential to the efficiency of machine industry. It is inconceivable that
foreign nations on the same level of industrial development as Britain
should acquiesce in the proposed policy of imperial monopoly or dis-
crimination." ^

Thus monopoly state capitalism is wholly reactionary. It means
more deliberate and sharper aggression against the newer relations
arising out of the collective forms of production and the international
character of modern industry. The dominant class interests use a bas-
tardized socialism to prevent the coming of socialism, to "stabilize" the
disintegration of the old order. State capitalism is not a form of transi-
tion to socialism but the direct opposite.* It is a form of the capitalist
struggle to retain power.

As a necessary consequence of its reactionary nature, state capitalism
develops measures for the "better" control of labor. Government in-
tervenes more consistently, directly, and sharply in labor disputes: an

* Centralization of the means of production in the state by the dictatorship of the
proletariat is not state capitalism. The class nature of the state is wholly different,
capitalist ownership of industry and its class exploitation are abolished, and society
moves onward to socialism and communism. State centralization of industry is, more-
over, temporary, its duration depending primarily on the dictatorship's economic
heritage and the speed of socialist construction. Socialism means the utmost of economic
decentralization within the limits of unified planning, eventually replacing the state
with the community of the integrally organized producers.

49^ The Decline of American Capitalism

old policy grows more teeth. The NRA began with "friendly" ges-
tures to labor. It quickly became a means of preventing and "settUng"
strikes. It warned labor against strikes, sanctioned company unions,
moved toward the liquidation of labor and government or "corporate"
unions akin to fascism. This was the result after nearly one year,
according to a liberal exponent of what the NRA "might" be:

"The position of organized labor is more uncertain and stands in
greater jeopardy than at any time since the Recovery Act became law.
Labor may be forced to accept compulsory arbitration within the NRA
code machinery. Compulsory arbitration means the abrogation of the
right to strike for any purpose. . . . How could it come to pass that a
policy admittedly favorable to labor and the rights of collective bar-
gaining could result in leaving those rights without effective safe-
guards? The trouble is, of course, that the Administration has had no
firm labor policy. It has vacillated constantly and has abandoned one
principle after another. . . . Early in his term of office. President
Roosevelt declared that 'there should be no discord and dispute — the
workers of this country have rights under this law — no aggression is
now necessary to obtain those rights.' It is now quite clear not only
that strikes are frequently necessary if labor is to gain its rights, but
that the government cannot be expected to bargain for labor. . . .
The indecision has already given reactionary industrialists too much
support. They, too, want labor disputes brought under the jurisdiction
of the NRA code machinery. Undoubtedly this will be the beginning of
a concerted assault on organized labor unless the administration im-
mediately asserts itself and backs up the rights of collective bargaining
promised labor."®

To attribute the reaction against labor to "indecision" and expect
the government to back up labor, is a total misunderstanding of the
class nature of both state capitalism and the state itself. They must
act against labor. State capitalism proposes to save the old order. It
tries to "unify" the nation and "balance" class-economic antagonisms
(to "stabilize" capitalist breakdown and for purposes of imperialist
aggression); the means adopted, because of the class nature of the
state, are for it to merge with monopoly capitalism more tightly, sub-
ordinate all other classes, and "institutionalize" the subjection of labor.
Formal democracy still prevails. So state capitalism may make minor
concessions to labor, within the limits of capitalist decline, engage in
maneuvers, give "legal" recognition to the rights of labor, speak of
class collaboration. But the aim is increasingly to limit the concrete
democratic rights of the workers: the right to organize and strike, to

State Capitalism, Planning, and Fascism 497

act as an independent class, to struggle for a new social order. This is
done by government control o£ labor, creating a whole network of
institutional arrangements (as in pre-Hitler Germany) for the
compulsory settlement of industrial disputes and the limitation of
independent labor action. The labor policy of state capitalism is an
expression of the capitalist struggle to retain power — to prevent labor
developing its own struggle to seize power.

State capitalism's "recognition" of labor is restricted, tends to put
unions under control of the state, is accompanied by "democratic"
browbeating of labor's representatives (who are easily and even will-
ingly browbeaten, because only conservative labor leaders are recog-
nized). This appeared clearly in a discussion between William Green,
President of the American Federation of Labor, and General Hugh
Johnson, NRA Administrator, at a session of "critics" where 2,000
businessmen were present:

Green: There must be a change in policy; minimum wages must
be established through negotiation with employees, before the codes
are approved.

Johnson [sharply]: Have you ever proposed that to me?

Green [hesitantly]: I think I did.

Johnson [more sharply] : I don't remember it. Isn't it a fact that all
codes have been passed on by the Labor Advisory Board and most of
them approved?

Green [flustered, backing down]: Well, I don't want to get in a
controversy over it, but if you said approved by the chairman of the
Advisory Board I'd say you were right. What I meant was that, in
the primary formation of codes, employers and NRA deputies met
with no labor men present.

Businessmen's Chorus [belligerently]: No!

Johnson [peremptorily]: Each deputy has a labor advisor.

Businessmen's Chorus [delightedly]: That's right.

Green [wea\ly]: He may be some man employed by the Labor
Advisory Board, but we don't regard him as speaking for labor.

Businessmen's Chorus [laughing uproariously]: Why not! '^

The courage of the labor representative: "I don't want to get in a
controversy"! The contempt of General Johnson and the business-
men! This is class collaboration in action. ...

The class purposes of state capitalism determine the character
of the economic "planning" with which it is identified. The planning
consists merely of more state intervention under the pressure of deepen-
ing contradictions and antagonisms, of artful dodges here and there to

49^ The Decline of American Capitalism

prevent the capitalist system from completely breaking down. The
fundamental element of the planning of state capitalism is the "planned
limitation" of output: it must be that, because the immediate form of
expression of the danger which threatens the capitalist system is the
abundance which modern industry is capable of creating. Yet this
aspect of the problem is wholly overlooked by the most intelligent and
persuasive of the liberal exponents of national planning:

"The true objective of planning is not stabilization at any static
level, but regularized growth. It is the full utilization of our powers
of production, which are continually growing, in order that our con-
sumption may grow correspondingly. To this end the purchasing
power of the masses must be maintained and must expand. Viewed
from the other side, then, the objective is the progressive raising of
the purchasing power and the standard of living of the people to the
full extent which our powers of production make possible. Increased
production and a raised standard of living must go hand in hand;
neither end can be gained without the other." ^

"Neither end can be gained without the other." Exactly. But it is
extremely naive to expect capitalist planning to accept that as its "true"
objective. It means the suicide of capitalism. For it is precisely the
prevention of an upward moving balance between production and
consumption, to save the rate of profit from falling disastrously, that
causes the crisis and decline of capitalism.

State capitalism resorts to "planning" to save the old order, to prevent
a collapse of capitalism. The Hberal ballyhoo for planning urges it in
the interest of higher standards of living, the stabilization of production
and employment, and the elimination of cyclical depressions, arguing
that otherwise capitalism will collapse. The approach is different but
the purpose is the same: save capitahsm. The Hberal "planners" accept
the fundamental relations of capitaHst production. "Strangely enough,"
observes one bourgeois economist, "though looking forward to a
coUectivist organization with 'control from the top,' such analyses are
by way of showing how the capitalist system can be made to work
under appropriate currency and investment controls."^ The liberal
ballyhoo not only accepts capitalist relations but confuses the whole
meaning of planning. Thus Dr. Charles A. Beard tries to prove that
planning is capitalist and inherent in capitalism:

"Of inner necessity technology is rational and planful. The engineer
must conform to the inexorable laws of force and mechanics. ... As
technology advances there will be a corresponding contraction of the
spheres controlled by guesswork and rule-of-thumb procedure. This

State Capitalism, Planning, and Fascism 499

means, of course, a continuous expansion of the planned zone of
economic activity. . . . Planning is already here; it is inherent in our
technological civilization. It would have gone forward inexorably,
even if the Russian Revolution had not borrowed it and dramatized
it.* . . . Our giant industrial corporations, though harassed by politics,
bear witness to the efficacy of large-scale planning." ^°

Technological planning within the workshop is as old as machine
industry. "Technology is rational and planful," but capitalist produc-
tion as a whole is economically irrational and socially unplanful. The
most scientific planning within the workshop is accompanied by the
anarchy of production in general. This is also true of large-scale plan-
ning within the corporation, which is limited and stultified by profit-
making and monopoly abuses. The contradiction between technolog-
ical-corporate planning and the socially unplanful character of the
capitalist economy becomes another unsettling factor in capitaUst pro-
duction. The enormous development of American large-scale corporate
planning in 1922—29 was accompanied by an upflare of unplanful eco-
nomic warfare in the shape of the "new competition," by a sharpening

* Dr. Beard drives home this point about planning: "There is nothing Russian
about its origin. Indeed, planning of economy was anathema to the Bolsheviks until,
facing the task of feeding enraged multitudes, they laid aside Marx, took up Frederick
Winslow Taylor, and borrowed foreign technology to save their political skins." But
the liberal ballyhoo for planning arose out of two significant, contrasting facts: develop-
ing socialism in the Soviet Union, with its planned economy, and the most catastrophic
depression in the history of capitalism, aggravating its decline and decay. Dr. Beard,
moreover, cannot cite chapter and verse for his assertion that "planning of economy
was anathema to the Bolsheviks," which is equivalent to saying they rejected socialism.
Lenin spoke of the social planning of production in 1916, before the Bolshevik con-
quest of power; the Soviet Union from the first began economic planning within the
limits and requirements of the prevailing stage of the revolution, until the realization
of a fully planned economy. Nor can Dr. Beard cite chapter and verse for the assertion
that the Bolsheviks "laid Marx aside." The Soviet's planning an abandonment of
Marx! Yet Marx, while bourgeois political economy was idealizing an unreal free
competition, analyzed the increasing concentration and socialization of production and
scientifically projected the planned economy of socialism. Where, moreover, is there
any reference by Taylor to national economic planning? (Lenin accepted the scientific
aspects of Taylorism but rejected its "refined cruelty of exploitation.") It is simply
malicious to say that the Bolsheviks "borrowed foreign technology." The United States
was once an agrarian nation: it borrowed foreign technology. Cultural borrowing is
a universal phenomena. Does Dr. Beard imply that the Bolsheviks, before they began
to borrow, expected to build socialism without modern technology? Or that socialism
should scrap the prevailing technology and start from scratch? The historian here
forgets historical continuity. Socialism develops out of capitalism, builds upon the
technical-economic basis of capitalism, to which it imparts new purposes and higher
forms.

500 The Decline of American Capitalism

of the contradictions of accumulation, of the antagonistic movement of
production and consumption, profits and wages, by an aggravation
of the socially unplanful character of capitalist production which en-
gendered the worst depression in American history. The conditions,
limitations, and contradictions of technological-corporate planning em-
body the necessity and possibility of unified "national" or social plan-
ning of industry. But this, in turn, is an expression of the collective
forms of production, of the incompatibility of the socialization of pro-
duction with the relations of individual ownership and appropriation.
Social planning is realizable only by releasing the newer collective
forms from the fetters of the older relations, which means sociaUsm.
Hence technological-corporate planning cannot, under capitalism, de-
velop into larger unified planning.

Planning is proposed to prevent cyclical depressions; but these are
inherent in the relations of capitalist production, and the relations
are retained by planning. The American War Industries Board is often
cited to prove that "planning" may prevent depression. But the Board
did nothing and could do nothing in that direction. It merely ascer-
tained the economic war needs, decided what constituted "essential"
and "non-essential" industries, determined allocation of raw materials
and transportation, and controlled the prices of certain commodities.
Profit-making was not interfered with: it was encouraged. The war
provided an enormous and insatiable market, which paid largely with
paper claims upon future generations, and postponed the coming of
the cyclical crisis inherent in the accumulation of capital. But the
crisis and depression appeared two years after the peace. State capital-
ism and its planning were most highly developed in pre-1929 Ger-
many. But they sharpened instead of moderated the cyclical fluctua-
tions :

"The two post-inflation cycles appear to have been most exceptional
in their amplitudes of rise and fall, in the shortness of the first cycle
and in the long phase of contraction of the second. . . . Partial con-
trol of the price system may have accelerated the cyclical movements
of prices that were not regulated, and even of the physical volume of
production and employment." ^^

Cyclical disturbances are a condition of accumulation, interlocked
with dl the relations of capitalist production. But state capitalism
merely intervenes piecemeal. The liberal planners either offer magic
keys, "control" this or "plan" that; or, when their proposals are more
comprehensive, they fight shy of the crucial issues. Ten points are basic

State Capitalism, Planning, and Fascism 50 1

in any program to abolish the economic maladjustments underlying
cyclical disturbances:

1. Maintain the balance between production and consumption on
a progressively ascending scale.

2. Control profits, i.e., determine the amount of the proceeds of
industry needed to produce capital goods (equipment, construction,
public improvements) .*

3. Control prices, not in the sense of price-fixing or of stabilization,
but to make the abundance of industry available to all and insure pro-
portional economic development.

4. Prevent disproportionate expansion or contraction in the different
spheres of production, in order not to thrown them out of gear with one
another; this includes "balancing" industry and agriculture.

5. Adjust, according to plan, the output of capital goods and con-
sumption goods.

6. Increase the consumer purchasing income of all functional groups
on the basis of the increase in productivity and production; abolition,
of course, of unemployment arising from technical-economic causes.

7. Make the distribution of income more equal, which means re-
leasing the forces of consumption.

8. Abolish speculation of all kinds.

9. Control investment, its amount and flow, according to plan and
balanced economic needs.

10. Control and planfully regulate all other phases of the national

* Profit disappears under socialism. This does not mean, of course, a disappearance
of the production of machinery and apparatus, transportation equipment, and construc-
tion. But these economic factors cease being capital, which is merely a social relation
yielding the power of exploitation, and become social wealth. What happens is that the
creation of "capital" is transformed into a conscious social apportionment of the labor
necessary to produce the machinery and i»pparatus, transportation equipment, and con-
struction in accord with the needs and objectives of the planned economy. The process
is stripped of all its exploiting relations, of all those antagonistic and contradictory
aspects which produce social-economic disturbances and disguise the fact that capital
goods come into being simply by assigning so much social labor to their production.
"If we assume that society were not capitalist, but communist, then the money capital
would be entirely eliminated and with it the disguises which it carries into trans-
actions. The question is then simply reduced to the problem that society must calculate
beforehand how much labor, means of production and means of subsistence it can
utilize without injury for such lines of activity as, for instance, the building of rail-
roads, which do not furnish any means of production or subsistence, or any useful
thing, for a long time, a year or more, while they require labor and means of produc-
tion and subsistence out of the annual social production. But in capitalist society, where
social intelligence does not act until after the fact, great disturbances will and must
occur under these circumstances." Karl Marx, Capital, v. II, pp. 361-62.

502 The Decline of American Capitalism

economy which might create disturbances, including foreign trade.

What this means, it is clear, is abolition of the social relations of
capitalist production to insure creative planning and the ending of
cyclical disturbances. For all the forces of maladjustment which must
be controlled arise out of the production of surplus value, its realiza-
tion as profit, and the conversion of profit into capital. Real planning
means control of profits in the sense of eliminating them. Capitalism
resists. The NRA has become an apparatus for making higher profits.
In England capitalists (particularly the coal barons) prefer stagna-
tion and decline to control of profits. In Germany and Italy capitalism
resorted to fascism in defense of profits. So the liberal exponents of
planning dodge the issue of control of profits and investment. Stuart
Chase recognizes that control of investment is vital to planning, but
admits that not much control can be imposed "without, one suspects,
reaping a whirlwind," and throws up his hands. He suggests "broad-
casting" information on which industries are overbuilt or underbuilt,
urges "more careful" allocation of bank loans, and piously insists that
"stock values must not pitch up and down like a canoe on the heaving
level of market quotations." No more! He drives the point home:

"It will be a long day before a planning board can tell a man what
he shall do with his surplus funds in this republic, but his sturdy
individualism might not be outraged if there were an authority to
tell him where his money had a chance of securing earning power
over a term of years, and where it would be simply thrown away." ^^

Thus "planning" comes to depend upon making investment more
secure and profitable. Investors unite, rally to planning and make more
money! Nothing is accomplished, in the sense of planned prevention
of depression, by telling a man where his investments may be more
secure and profitable. Cyclical disturbances are not caused by investors
"throwing away" their money. In fact, in the welter of contradictions
which is capitalism, unprofitable investment contributes to maintaining
the balance between production and consumption by decreasing profits
or wiping out capital claims but increasing consumer purchasing
power.

There are four stages or types of economic planning, separate and
distinct, although merging in one another. They are:

I. Technical-economic planning within the workshop, either in an
independent plant or in plants under the same corporate control.
This, the most thorough planning under capitalism, is accompanied by
cruelty to workers and is hampered by the profit system.

State Capitalism, Planning, and Fascism 503

2. Corporate planning, of which there are three forms. The first is
planning within independent corporations: deciding relations among
subsidiary plants, determining and assigning output, organizing the
sale or purchase of commodities in far-flung markets, planning ex-
pansion in old or new fields. Another form is planning by the holding
company in control of many subsidiary corporations. The third form
is the planning involved in the relations of the banks to industry. All
these forms of planning are limited by the conditions of their origin
and development. Corporate planning is accompanied by the output
of useless goods, excess plant capacity and competition, the ruthless
struggle for profits, and the wastes of merchandising. The holding
company is primarily an agency for the exploitation of subsidiaries.
Banking houses "plan" the flow of capital on a profit-yielding basis,
and upset the economic equilibrium by encouraging overinvestment
and speculation. Finally, the most highly developed corporate planning
is an aspect of monopoly capitalism, which has other aspects : intensified
exploitation of labor, predatory control by the financial oligarchy, de-
cline, imperialism, and war.

3. National economic planning, all forms of which recognize the
limitations of corporate planning. The state, in one way or another,
intervenes to aid industry. It is aid, not planning; and it is the capital-
ist state and capitalist industry. National economic planning assumes
difiFerent forms in different countries and in different stages of de-
velopment. But it is always aid, never unified planning; it becomes
all the more necessary the more highly developed is the corporate plan-
ning of monopoly capitalism, which is identified with economic de-
cline and decay, forcing greater aid and intervention by the state.
There is no attempt to plan the whole national economy, merely
piecemeal aid to supplement private capitalist enterprise where its re-
sources or powers are inadequate or it is in a desperate condition. The
state cannot plan, for it is enmeshed in the social relations of capitaUst
production, and it acts to preserve those relations. Under the conditions
of decline, when it becomes more desperately necessary to use collec-
tive state action to preserve the relations of individual ownership and
appropriation, the planning of state capitalism includes limitation of
output, the lowering of wages, and a planned offensive against labor.
Capitalism uses a bastardized socialism to repress the productive forces
of society, to oppress the working masses, to prevent the emergence
and realization of socialism.

4. Planned economy, the necessary accompaniment of the release of
the collective forms and forces of production from their capitalist

504 The Decline of American Capitalism

fetters, of socialism and communism. In a system of planned economy
the emphasis is on the new social relations of production, the socializa-
tion of production and consumption. All phases of economic activity
are under planful regulation and control, including the unity of in-
dustry and agriculture. Production is for use, not profit.

A planned economy is possible only after the state power is forcibly
wrested from the dominant bourgeois class, only after the dictator-
ship of the proletariat has destroyed the old sodial relations of
production and set in motion the creation of the new. Liberals insist
"we should learn" from the planned economy of the Soviet Union,
but they separate it from its class-political accompaniments: they want
"democracy" and peaceful change, they object to dictatorship. But
planned economy functions in the Soviet Union only because of the
dictatorship of the proletariat, only because the dictatorship has over-
thrown capitalism, crushed the exploiters and prevents their reappear-
ance, only because the dictatorship permits socialization of all economic
activity. The Hberals object — ^and accept capitalism, which, of course, is
sweet, reasonable, democratic {cf. exploitation, forcible suppression of
strikes, denial of civil liberties, disemployment and all its terrible re-
sults, fascism and its suppression of the concrete democratic rights of
the workers, imperialism, war) . Liberals depend upon capitalism, have
faith in capitalism, fly to the defense of capitalism in its moments of
danger.

The economic argument for national planning is overwhelming.
Capitalist industry is complex, dependent upon the balanced function-
ing of innumerable parts; production and distribution are collective
and require collective control. These are the objective conditions of
planning. But every major economic development has two aspects,
the economic and the class-political, and they are inseparable. The
class-political aspect of the objective socialization of production and the
necessity of planning is the threat to the property relations of the
dominant class interests. So the planning of state capitalism proceeds
within the limits and purposes of capitalism.

In addition to planning, state capitalism ornaments itself with the
plumes of reformism. The Roosevelt Administration pretentiously
proposes a whole series of reforms — to realize nothing less than "se-
curity"! But when the NRA got into action they talked much about
the reforms — unemployment and health insurance, better housing, old
age pensions, higher wages. Nothing was done. So Roosevelt talked
some more about them one year later. Rugged individualism scorned
the reforms when capitalism was well; now it is sick, and they talk

State Capitalism, Planning, and Fascism 505

about them to impose upon the masses. But the conditioning factors
of reform have changed. In the epoch of capitalist upswing, reforms
were necessary and possible because of economic growth; under the
conditions of capitalist decline, they are unnecessary and impossible.
For reforms, with profits moving downward and mass discontent and
consciousness moving upward, threaten capitalism economically and
politically. Capitalism in decline reacts against reform, as it reacts
against progress in general: it moves toward the abolition of reform
and its achievements. The workers of Vienna were proud of their
model dwellings, built by a socialist administration. This monument
to reform was battered down by the cannon of the capitaUst state in
its efforts to crush the militant workers. The dwellings were patched
up. But the workers were thrown out. The scum of reaction moved
in. State capitalism limits reform to relief, represses the concrete demo-
cratic rights of the workers, and prepares their destruction by fascism.
It took Mussolini several years to wipe out the workers' gains; it took
Hitler several months. Progress under fascism! The fascist overlords
no longer speak of reform after they get in power; they speak of the
necessity of lower standards of living, of the masses living on Ersatz,
or substitute, products.

Both the planning and the reformism of state capitalism must fail.
But that does not make socialism "inevitable" in the vulgar meaning of
the term. Capitalism does not "grow into" socialism, it merely deter-
mines the necessary historical conditions, which provide the proletariat
and its most conscious, revolutionary elements with the opportunity for
creative action. State capitalism is not the transition to socialism but
a reaction against it, which, if the revolutionary proletariat does not
act, becomes a transition to fascism. No crisis of capitalism is hopeless,
unless the proletariat makes it so. For capitalism can find a "way out''
— in more oppression of the masses, in war, in decline, stagnation, and
decay, for these do not matter to the bourgeoisie if it can cling to power.
Socialism is inevitable in the long run: humanity will not forever
endure the oppression and decay of capitalist decline, and socialism
is the only alternative. But socialism is not inevitable in the short run,
and this is decisive in the practical revolutionary politics and struggles
of the workers. On this aspect of the problem Lenin, who combined
a passion for scientific analysis of objective forces and possibiHties with
a passion for dynamic action, strategy, tactics, and will, said:

"Capitalism could (and very rightly) have been described as 'his-
torically worn out' many decades ago, but this in no way removes
the necessity of a very long and very hard struggle against capitalism

5o6 The Decline of American Capitalism

at the present day. . . . The scale of the world's history is not reckoned
by decades. Ten or twenty years sooner or later — from the point of
view of the world-historical scale — makes no difference; from the point
of view of world history it is a trifle, which cannot be even approxi-
mately reckoned. But this is just why it is a crying theoretical mistake
in questions of practical politics to refer to the world-historical scale." ^^

The vulgar conception of the inevitability of socialism merely cloaks
the reformist and opportunist refusal to struggle for the overthrow of
capitalism. Only the revolutionary consciousness and action of the
proletariat and the understanding, strategy, and tactics of its com-
munist party maJ{e socialism inevitable.*

Behind the vulgar conception of inevitabiUty, in theory, is a failure
to understand the differences between the proletarian and the bour-
geois revolutions. Merely the similarities are stressed. (Although, sug-
gestively, not the bourgeois use of revolutionary force and dictatorship.)
The development of the forms of a new economic order, and its class

* "The socialist republic will not leap into existence out of the existing social loom,
like a yard of calico is turned out by a Northrop loom. Nor will its only possible
architect, the working class — that is, the wage-earner, or wage slave, the modern
proletariat — figure in the process as a mechanical force moved mechanically. In other
words, the world's theatre of social evolution is not a Punch and Judy box, nor are
the actors on that world's stage manikins, operated with wires. . . . The socialist
republic depends not upon material conditions only; it depends upon these — ^plus
clearness of vision to assist the evolutionary process. ... It depends, not upon a
knowledge of scientific socialist economics and sociology alone. It depends upon that
and, hand in hand with that, upon an accurate knowledge ... of what I may call
the strategy and tactics of the movement." Daniel De Leon, Two Pages From Roman
History (1902), pp. 7, 54, 88-89. In spite of much sectarianism and some practical
and theoretical shortcomings, De Leon, whose Two Pages Lenin considered a master-
piece, was a great Marxist, creative in his approach to American problems. He
stressed the role of a conscious, highly disciplined party as the spearhead of revolution,
and waged ruthless war upon reformist socialism and opportunism. Although he did
not originate the idea of industrial unionism as projecting the "government" of the
new socialist order, he provided it with a thorough Marxist approach and application,
insisting that Engels' "administration of things," after socialism abolished the state,
could only be the community of integrally organized producers. While Lenin condemned
the idea that the revolution depends upon organizing the workers 100% industrially
under capitalism, he accepted industrial unionism as the basis of socialist society,
"Left" Communism, An Infantile Disorder (1920), p. 31: "Trade unions, very slowly
and in the course of years, can and will develop into broader industrial rather than
craft organizations (embracing whole industries and not merely crafts, trades, and
professions). These industrial unions will, in their turn, lead to the abolition of division
of labor between people, to the education, training, and preparation of workers who
will be able to do everything."

State Capitalism, Planning, and Fascism 507

carrier, transformed the old feudal order and thrust the new class
into power with an almost mechanical inevitability. While this process
goes on within capitalism, inevitably preparing the objective basis of
socialism, there are some differences which profoundly afiFect strategy
and tactics.

The bourgeoisie was a propertied class, the proletariat is non-proper-
tied. From one angle, this means that, while the bourgeoisie merely
replaced one form of property with another, the proletariat will
abolish property and, consequently, class rule and exploitation. But
property was a source of strength to the bourgeoisie, its lack a source
of weakness to the proletariat.*

The bourgeoisie owned the new forces of production, whose owner-
ship piled up wealth and power for the new class. Even while it still
maintained its political control, the nobility came to depend upon the

* "The distinctive mark of the bourgeoisie was the possession of the material means
essential to its own economic system; on the contrary, the distinctive mark of the
proletariat to-day is the being wholly stripped of all such material possession. . . . The
sign, the symptom, the gauge of bourgeois ripeness was their ownership of the physical
materials essential to their own economic system; the sign, on the contrary, of the
proletariat is a total lack of all material economic power — a novel accompaniment to
a revolutionary class. Does this difference establish a difference in kind between the
proletariat and the old bourgeoisie as a revolutionary class? It does not. But it does
establish a serious difference in the tactical quality of the two forces, a difference that
imparted strength to the former revolutionary forces under fire, while it imparts weak-
ness to the proletariat. There was nothing imaginable the feudal lord, for instance,
could do to lure the bourgeois from the path marked out to it. Holding the economic
power, capital, on which the feudal lords had become dependent, the bourgeois was
safe under fire. All that was left to feudalism to maneuver with was titles. It might
bestow these hollow honors, throwing them as sops to the leaders of the bourgeoisie.
. . . The striking arm was bound to come down. Wealth imparts strength; strength
self-reliance. Where this is coupled with class interests, whose development is hampered
by social shells, the shell is bound to be broken through. The process is almost auto-
matic. Differently with the proletariat. It is a force every atom of which has a stomach
to fill, with wife and children with stomachs to fill, and, withal, a precarious ability
to attend to such urgent needs. Cato the Elder said in his usual blunt way: 'The belly
has no ears.' At times this circumstance may be a force, but it is only a fitful force.
Poverty breeds lack of self-reliance. Material insecurity suggests temporary devices. Sops
and lures become captivating baits. And the one and the other are in the power of
the present ruling class to maneuver with. Obviously the difference I have been point-
ing out between the bourgeois and the present, the proletarian, revolutionary forces
shows the bourgeois to have been sound, while the proletarian, incomparably more
powerful by its numbers, to be afflicted with a certain weakness under fire, a weakness
that, unless the requisite measures of counter-action be taken, must inevitably cause the
course of history to be materially deflected." De Leon, Two Pages From Roman History,
pp. 58-60.

5o8 The Decline of American Capitalism

economic power of the bourgeoisie, compelled to recognize and make
concessions to new economic forces and their class representative. In
"balancing" the conflicting interests of nobility and bourgeoisie, the
absolute monarchy represented an increasingly ascendant bourgeois
power. The new class might compromise with the nobility and the
monarchy and yet accomplish its essential purpose, because the posses-
sion of the new form of property, which irresistibly became the domi-
nant form, strengthened the bourgeoisie and weakened the feudal class.

Thus its ownership of the new forces of production almost automati-
cally made the bourgeoisie the ruling class. But the non-propertied prole-
tariat does not own the economic forces of the new social order.
These are implicit in the collective character of industry, the basis of
socialism, but industry itself is in the ownership of the capitalist class.
Where, under the conditions of monopoly capitalism, ownership is
separated from management, the managerial employees and small
stockholders are overwhelmingly identified, economically and ideolog-
ically, with the dominant property and class interests. The proletariat
is in physical possession of the means of production, the source of its
revolutionary significance, vigor, and power, but the assertion of this
possession is possible only by an ideological transformation and a
revolutionary act.

There are other differences. The peasants, artisans, and wage-workers
necessarily accepted the leadership of the revolutionary bourgeoisie in
the struggle against feudalism; the revolutionary proletariat must carry
on a whole campaign to win over or neutralize the farmers and elements
of the middle class. Every revolutionary class must wage war on the
cultural front. The university, science, technology, and learning were
in general manifestations of bourgeois development, under bourgeois
control, waging the bourgeois cultural struggle against the feudal
order. But now all these forces, in their dominant institutional forms,
are opposed to the proletariat; its revolutionary culture, while it in-
cludes many concrete achievements, is necessarily and mainly potential,
a culture of revolutionary criticism and ideological struggle, interpret-
ing, clarifying, projecting, capable of becoming dominant only after
the revolution, where bourgeois culture measurably conquered while
the old class-political forms were still in power.

The proletarian revolution, moreover, is much more fundamental than
the bourgeois revolution. Where the one replaced older forms of prop-
erty and exploitation with newer forms, the other annihilates all forms
of private property and exploitation. There can be no compromise
between capitalism and socialism. Compromise between feudalism and

State Capitalism, Planning, and Fascism 509

capitalism revealed their exploiting identity. Capitalism developed
irresistibly in England in spite o£ the restoration o£ monarchy after
the Puritan revolution. The nobility, whose make-up was transformed
by the "new men" who rose to power as a result of the upsets created
by bourgeois development, was enriched, particularly in England and
Germany, by industrial exploitation of mineral resources on the great
landed estates; some of the nobles were even pioneers of capitalist
enterprise. An older class adapted itself to the rule of the new, was
measurably absorbed into the new system. But capitalists cannot be
absorbed into the new sociaUst order; hence there can be no com-
promise between socialism and capitalism. Capitalist resistance to
socialism is necessarily more violent and enduring than feudal resistance
to capitalism.

Proletarian organization, in a sense, corresponds to the bourgeois
ownership of property. The proletariat, organized by the mechanism
of capitalist production itself, imposes limitations upon the absolute
sway of capital by means of organization. But labor organizations turn
into fetters upon action for larger purposes, become entangled with
the limited aims of the aristocracy of labor, are influenced by the eco-
nomic, cultural, and political weight of the ruling class, develop the
vested interests of a bureaucracy frightened of "disturbing" actions.
(The dialectics of the proletarian revolution indicate that an inescapa-
ble phase is the struggle against the limited aims and conservative
leadership of the older organizations of labor, which is a struggle to
transform quantity into quality. "Proletarian revolutions," said Marx,
"criticize themselves constantly; constantly interrupt themselves in their
own course; come back to what seems to have been accomplished in
order to start anew; scorn with cruel thoroughness the half measures,
weaknesses, and meannesses of their first attempts; seem to throw
down their adversary only in order to enable him to draw fresh
strength from the earth, and again to rise up against them in more
gigantic stature; constantly recoil in fear before the undefined monster
magnitude of their own objects — until finally that situation is created
which renders all retreat impossible, and the conditions themselves
cry out: "Hie Rhodus, hie salta!")^*

The proletariat must strike ruthlessly when the moment is favor-
able; otherwise its forces may break apart, temporarily but still dis-
astrously, as capitalism is favored by the institutional weight of its
economic, cultural, and political domination. For if the proletariat,
where the conditions are favorable, does not seize power, if it com-
promises with capitalism instead of destroying it (as in Germany in

510 The Decline of American Capitalism

1919), there is an inevitable if temporary renewal and consolidation
of capitalist supremacy. The proletariat is susceptible to the lures and
wiles of reformism, prone to weaknesses and half measures, hampered
by the conservatism of its organizations and their bureaucracy, which
avoid and betray revolutionary struggle.

But the complicated conditions of proletarian revolution are offset
by an increasing awareness of purposes and means, which becomes
itself a social force.* They are, moreover, dangerous only if they are
not properly understood and evaluated. They are fatal to moderate
socialism and laborism, because these movements are dominated by,
instead of dominating, the complex class-economic relations, and reject
the necessity of creative revolutionary action in favor of the reformism
which inevitably merges into capitalism because of the economic,
cultural, and political weight of the capitalist class. The complications
of the proletarian revolution demand the creative initiative and aware-
ness of Marxism. They demand a policy of inflexibility and no com-
promise on fundamental issues with the class enemy, of balancing
immediates and ultimates, of an indissoluble unity of theory and
practice. But at the same time the utmost flexibility is necessary in
approaching the workers, of moving with them even when their
actions are characterized by half-measures and weaknesses, of com-
promising on issues which do not involve fundamental objectives, of
maneuvering in the midst of complex class relations, of combining
the immediate needs and struggles of the workers with their larger
class interests and purposes. These apparently contradictory but dialec-
tically complementary factors impose the necessity of an inflexibly
revolutionary and disciplined party of the most conscious and militant
workers, a communist party which, precisely because it is inflexibly
agreed on fundamental purposes and means, can flexibly approach the
complex conditions under which the proletariat operates, be both
participant in and vanguard of the struggle of the masses, until they
rally to the party's final revolutionary program and struggle for power.

Monopoly state capitalism cannot work. It merely tries to "stabilize"
the conditions of capitalist decline, and makes things worse. The
proletariat enlarges its action, becomes more aware of means and pur-
poses, moves toward the revolutionary struggle for power. Capitalism
answers with counter-revolution.

State capitalism is itself a struggle against the proletariat and its
potential revolutionary action. But state capitalism still clings to formal

* This subject is more fully discussed in Chapter XXVI, "The American Revolution."

State Capitalism, Planning, and Fascism 511

democracy; the workers still possess, in spite o£ limitations and repres-
sion, the concrete democratic rights to organize and strike, openly to
act independently as a class and to engage in the struggle for a new
social order. As the economic and political crisis becomes more acute,
the immediate and potential revolutionary action o£ the workers be-
comes more threatening. Capitalism reacts by destruction of the con-
crete democratic rights of the workers: destruction of the unions, of
the right to strike, of the political organizations of labor. It is no longer
merely a question of destroying the revolutionary, the communist
vanguard of the working class. For the situation is so acute that revo-
lution is on the order of the day; the conservative worker of to-<la\y
may become the revolutionary worker of to-morrow. So capitalism
destroys all labor organizations, economic and political, attempts to
deprive the worhjng class of all possibility of initiative and independent
action. This makes both necessary and possible a united labor struggle.

The immediate form of this struggle against the capitalist reaction,
which grows out of the underlying conditions of state capitalism and
increasingly becomes fascism, is a struggle to protect the concrete
democratic rights of the workers, to preserve their organizations and
class independence. Upon this issue the workers are mobilized and
thrown into action against the capitaHst offensive. But this struggle
of the workers to protect their concrete democratic rights must go
beyond its immediate purposes, must become a revolutionary struggle
for power, for the workers' rights are dangerous to capitalism in decline
and must be destroyed. Out of the immediate defensive action arise
the conditions and necessity of larger offensive action, of the final
struggle to overthrow capitalism.

The ruling capitalist class is a small oligarchy. Its rule needs a social
base in wider mass support. As the oppressive weight of monopoly
state capitalism thrusts the working class on to more aggressive action,
other classes are set in motion by their own oppression. The farmers
and middle class revolt. Fascism is an attempt to use the petty-bour-
geois masses (including the agrarian) as the upper bourgeoisie has
always done, in other forms, to act as a counter-revolutionary mass
force. But these are essentially plebeian masses, the decline of capitalism
presses mercilessly upon them, and they are desperate. So fascism masks
its purposes with anti-capitalist and radical phrases. But the moment
it comes to power fascism reveals itself as the dictatorship of monopoly
capitalism. All along fascism is financed and supported secretly by the
big capitalists; now they step forward and take power, while the petty-
bourgeois masses are assigned the role of butchers of the opposition.

512 The Decline of American Capitalism

The resort to fascism is an expression of capitalist desperation. The
capitalists would prefer to rule by the old methods of bourgeois democ-
racy, for while the fascists are their hirelings they demand payment
and may go beyond "legitimate" purposes, become locusts devouring
profits. But bourgeois democracy breaks down. Its concrete democratic
rights offer the workers the opportunity for organization and action.
The petty-bourgeois masses, the carriers of democracy and formerly
held in leash by it, can now be made a mass support of capitalism only
by the annihilation of democracy — precisely as capitalism now clings
to power by reacting against all its progressive forces — only by divert-
ing the petty-bourgeois from a struggle against capitalism to a struggle
against democracy. This is an important symptom of capitalist decay.
Another symptom is the degeneration of the ruling class itself, em-
phasized by its fascist mobilization of the scum of society, adventurers,
gangsters, and degenerates, in a struggle against the new social order.
For fascism draws to itself the worst social elements, it makes a cult
of cruelty and reverts to Caesarian barbarism.

From a class-political angle, fascism is distinguished by three main
characteristics:

1. Fascism suppresses the organizational and class independence of
the workers. The "Charter of Labor" of Fascist Italy forces the workers
into "unions" under complete control of the state, deprives the workers
of the right of collective bargaining, prohibits strikes and other forms
of independent class action.^^ So does Fascist Germany. But the Nazis
have improved upon the technique of their Italian brethren. The only
"unions" permitted are in isolated company plants, completely separated
from the "unions" in other plants; and all labor relations, including
the fixing of wages, are under control of the employer, the "leader"
whose "honor" alone limits his actions.^^ Class collaboration!

2. The petty-bourgeois masses, the social support of fascism, are
used to secure power and are then increasingly thrust downward to
the level of the workers. Italian fascism weighs heavily upon the petty-
bourgeois masses. One of Hitler's first acts after coming to power
was to abolish independent middle class organizations. Testimony is
that "the professional classes are poorer now than before," and "the
small bourgeoisie, formerly the most ardent Nazi supporters, are
beginning to resent interference by the state in their private lives,
while economically their position has not improved." ^^ In fact, it has
become worse.

3. A tighter amalgam of finance capital and the state, for purposes

State Capitalism, Planning, and Fascism 513

of aggression against the workers and petty-bourgeois masses and war
against other nations. Fascism monstrously inflates nationalism.

Underlying these characteristics, and attempting to bind them to-
gether, is another: the creation of an ideology to replace the demo-
cratic ideology which was formerly the moral source of capitalist
domination. This new ideology is a complete reaction against the
old, rejecting progress and deifying reaction. It is an expression of the
complete moral collapse of capitalism, one of the most important
symptoms of a dying class.

Fascism is not a new economic system. Its whole economic policy is
merely that of state capitalism, with one important difference: As state
capitalism still clings to formal democracy, it must make concessions
(as few as possible, of course) to other classes, to "balance" class in-
terests. Fascism may disregard this necessity because it suppresses
democracy and class independence. Contrary to its claims, fascism
imposes fewer "controls" upon finance capital than state capitalism,
because finance capital merges more completely into the state. Beyond
this, fascism pursues the state capitalist policy of aiding private enter-
prise, of trying to overcome the multiplying contradictions and antag-
onisms of capitalist production by the collective economic action of
the state, of trying to "freeze" the disintegration of capitalism. The
"corporate state" is merely a disguise for reactionary state capitalism.
Fascism cannot create a new economic order. For the petty-bourgeois
masses do not represent a new order, but an older one which monopoly
capitalism has destroyed; in so far as they are small producers, the
petty bourgeois are entangled with the survivals of a mode of produc-
tion which must completely disappear. Fascism, in fact, strengthens
monopoly capitalism. The petty-bourgeois masses behind fascism
accept the relations of private property, and these relations inevitably
produce monopoly capitalist control. Fascism is merely the old order,
only more so and without the progressive features which that order
formerly possessed. It is capitalism brutal, reactionary, wholly preda-
tory: capitalism clinging to power by revival of political forms and
ideals which it once opposed with revolutionary vigor.

Once in power fascism ruthlessly disposes of the elements within
itself which may have taken seriously its anti-capitalist and radical
phrases. It combines openly with the old reactionary forces and the
repressive apparatus of the state. More or less rapidly but surely,
depending largely upon the movement of the cyclical and general
crisis of capitalism, fascism loses its plebeian support in the petty-
bourgeois masses, and becomes a military dictatorship. Bourgeois

514 The Decline of American Capitalism

democracy provided a mass support because capitalism was on the
upswing and by and large "delivered the goods." Fascism cannot
provide a real mass support because capitalism is in decline and no
longer "delivers the goods." But as its social support crumbles, includ-
ing its promises and ideology, and fascism relies more openly upon
mere miUtary force, conditions ripen more quickly for a revolutionary
upsurge of the masses.

Fascism, and many of its apologists agree, is a modern form of
Cassarism. What was Caesarism? It was the expression of Roman
decline, stagnation, and decay (which made conquest and rapine a
philosophy and a way of life). Progressive class-economic forces were
exhausted. The ruling class was decadent, unable to rule any longer
by the old methods. No new revolutionary class appeared on the
social scene. But Caesarism operated in a society which was pre-
dominantly agricultural and static, where no class was capable of
revolutionary struggle, and no new forms of production thrust insist-
ently against the shell of old social relations (except the small begin-
nings of serfdom, a result of slave agriculture becoming increasingly
unprofitable). The despairing masses turned to the other-worldly
resignation of Christianity. Thus Caesarism could long endure. But it
eventually crashed. The Caesarism of fascism operates in a dynamic
society, where a new economic order presses insistently for release,
and the revolutionary proletariat and Marxism are organizing, striv-
ing, acting. These forces can prevent the coming of fascism, with
its threat to civilization itself. Fascism may temporarily suppress but
cannot destroy them. It is another challenge to creative Marxism, to
the communist awareness of purposes and means and its purposive
application to new problems.

CHAPTER XXV

The Crisis of the American Dream

ILJ NDERLYiNG the class-idcological crisis created by the decHne of cap-
itahsm is a crisis of faith in the old order. More concretely, it is a
crisis of the constituent ideals which animate the faith. The ideals of
the American dream — the trinity of liberty, opportunity, and progress
— were becoming, long before the crisis of the capitalist system, in-
creasingly restricted in scope and unrealizable in practice. They lin-
gered on primarily as a cultural lag: for ideals may persist and aflfect
social action after the material conditions of their origin are no more.
Now the breakdown of the ideals is startlingly revealed by the decline
of capitalism. The faith of the million-masses begins to crumble.

The stubborn cultural lag identified with the ideals of the Amer-
ican dream is proof of their former vigor and measurable reality. They
were, it is true, ideals forged in the fires of the bourgeois revolution
in Europe, but they acquired greater scope and realization in the
American scene because of the frontier and the absence of feudal
hangovers, resulting in more favorable social-economic relations for
the practice of Uberty, opportunity, and progress. The American dream
assumed definite shape and flourished most vigorously in the 1820's-
50's. An enormous mass of settlers was absorbed by the frontier, creat-
ing an agrarian democracy whose independence and rebellious spirit
strongly colored American life. Industry developed rapidly, and it was
in the small-scale stage which made it "open to all the talents." Re-
strictions on the right of labor to organize were overthrown. Remnants
of semi-feudal tenure in the colonial land system were destroyed. The
older aristocracy was breaking down, the new not yet entrenched
in power. Free public education was enacted into law, and it measur-
ably included higher learning. The ideals of the American revolution
and of Jeflersonian democracy seemed wholly realizable. One bour-
geois historian thus describes the situation:

"Neither an extreme of individualism nor uniformity. Class dis-
tinction became less obvious than in earlier days, but it did not quite
disappear. There was absent the later bitterness of class feeling. . . .
American aristocracy was not a closed caste, and it was everywhere
firmly linked with the mass. . . . There was so close an approximation

5i6 The Decline of American Capitalism

to economic equality to match the political that effort and ability
could raise anyone to the top. ... A fundamental element of a living
was liberty, and all Americans were expected to look forward to
becoming their own masters. . . . The agency of the national gov-
ernment was reduced to a minimum. ... To deny that the Amer-
ican system of government would be immediately beneficial if adopted
in China was to commit democratic treason; heredity availed not —
opportunity plus effort would produce anything at once. . . . Free
men could be trusted to want what was right and to get it. . . . The
dominant and simple belief in equality, the vast demand for labor,
and the individualistic conception of government, all reinforced the
sentiment that the United States was a refuge for the oppressed as
well as an example to the world." ^

The dream had many tawdry elements. Underneath it all, moreover,
were many serious abuses. There was the extermination of Indians
and the slavery of the Negro. In the South the American dream was
excluded, for slavery prevented its appearance even among "poor
whites." The factory system was consolidating itself, with its typical
evils. Vile slums disfigured the larger towns. Political corruption
flourished, and was generally considered an element of "opportunity."
Already there was prejudice and enmity against immigrants, whose
labor sustained much of the liberty, opportunity, and progress of the
older Americans. But the faith was that these abuses would be de-
stroyed, as others had been : agrarian radicals and Abolitionists testified
to the faith. The hope was, in this new world, that a new social order
was being created, moving irresistibly onward to higher things. Of the
measurably plebeian democracy — impatient, rebellious, against the old
and for the new — the plebeian Whitman sang:

The democratic masses, turbulent, wilfull, as I love them.

Ones-self I sing, a simple separate person,

Yet utter the word Democratic, the word En-Masse,

It alone is without flaw, it alone rounds and completes all.

I swear nothing is good that ignores individuals.

Do you see who have left all feudal processes and poems behind,
and assumed the poems and processes of democracy?

Without extinction is Liberty, without retrograde is Equality
(Not for nothing have the indomitable heads of the earth been
always ready to fall for Liberty).

The Crisis of the American Dream 517

Resist much, obey little.
I leave in him revolt (O latent right of insurrection! O quenchless,
indispensable fire!)

I will make a song full of weapons with menacing points.
My call is the call of battle, I nourish active rebelliom.

You who celebrate bygones . . .
I project the history of the future.

O America because you build for mankind I built for you.

But where Walt Whitman beUeved he was singing the future de-
mocracy (some "radicals" still do), he was really celebrating an age
already passing away in his own lifetime. For the social-economic
relations which sustained the ideals of the American dream arose out
of the prevalence of small independent property and the comparative
ease of its acquisition. The middle class was ascendant; it was not
restricted by survivals of feudal aristocracy, ideology, and political
power. The workers were few and largely composed of skilled artisans;
if they owned no property, they were convinced it was within their
reach. The farmers were the largest class, independent, impatient of
restraint, animated by a definite, if parochial, spirit of revolt. It was
essentially the petty-bourgeois democracy of early capitalism, invig-
orated by the absence of feudal hangovers and the constant rebirth of
the frontier (the small independent farmer is himself a petty bour-
geois). But the development of capitalism is conditioned by the an-
nihilation of independent property: an objective socialization of in-
dustry which assumes the capitalist form of concentration of ownership
in a small predatory class. Whitman saw this development without
appreciating its significance; in fact he greeted "the almost maniacal
appetite for wealth, the immense capital and capitalists" as "parts of
amelioration and progress, needed to prepare the very results I de-
mand." The makers of the American dream, by and large, crudely
admired material progress, possessions, wealth. Yet these forces de-
stroyed the conditions of petty-bourgeois democracy, limited or altered
the ideals of the American dream, and strengthened its more tawdry
elements.

The onward sweep of industrial capitalism, which consolidated its
power during the Civil War and after, transformed social-economic
relations. Out of the middle class arose the great industrial capitaUsts;

5i8 The Decline of American Capitalism

the class was thrust downward, becoming a "class" of small business-
men struggling for survival, functional groups dependent upon large-
scale corporate industry, and parasitic elements nourished by the purely
speculative and predatory aspects of capitalism. The workers became
industrial serfs; instead of independent property, the great objective
now was jobs, higher wages, and lower hours. Agriculture was
mastered by industry; the farmers were steadily deprived of their class-
economic independence, ground down by capitalist exploitation, land
speculation, and an increasing tenancy which gradually lost its char-
acter of climbing up the agricultural ladder. The frontier began slowly
but inexorably to close: measurably by 1880, completely by 1900.
Before this, a fundamental change in the frontier altered its significance.
There were really two frontiers. The older frontier, before the 1850's,
built up an essentially self-sufficing agricultural economy; it was a
driving democratic force, destructive of class stratification, creating an
ideology and representing a way of life.* The newer frontier, after the
1850's, was increasingly dependent upon the economy of market and
price; it was essentially a force in the extensive expansion of capitalist
agriculture, mining, and industry, resulting in conditions destructive of
the old ideology and way of life and consoUdating a new class strati-
fication. For agriculture sustained the development of capitalism in the
Western regions, which made farming a business, destroyed its inde-
pendence, and converted the new regions into provinces, if not direct
domains, of industrial and finance capital.f

Developments after the Civil War constantly restricted the reality
of the American dream: its ideals disintegrated, were limited in prac-
tice, or assumed a different character. Most of the libertarian spirit

* They still talk, to-day, of farming as a way of life, although it has long since been
a business and is being ruined by the decline of capitalism.

t Frederick J. Turner was the first historian to analyze the significance of the
American frontier. But Turner, The Frontier in American History (1920), oversimplified
the picture by neglecting the conditioning class-economic relations. This is also true of
his analysis of sectional struggles, which at bottom were class struggles. The frontier
and sections were important peculiarities of American development, but it is impossible
to grasp their full significance without relating them to class relations and the onsweep
of industrial and monopoly capitalism. The frontier contributed to the shaping of
the American dream; it contributed still more to the development of capitalist agricul-
ture and industry, which reacted against the dream. Turner and his successors were not
satisfied to consider the influence of the frontier as temporary and past, but projected
it into the future as a "spirit" still animating American life and creating a new national
unity. But the frontier and the dream passed on; monopoly capitalism remains, with
its class stratification, economic decline and crisis, and reaction against the ideals of
the American dream.

The Crisis of the American Dream 519

evaporated. Independence was increasingly replaced by insecurity. Class
lines began to harden and government to usurp more repressive powers.
Individualism was submerged, except for the freedom granted to capi-
talist buccaneers, as a constantly greater proportion of the population
became direct employees or general dependents of large-scale corporate
industry dominated by the financial oligarchy. Opportunity for the mass
was more and more limited to survival or slightly improving one's lot
within the new institutional set-up. The dream became primarily a
faith in mere material progress; its old cultural promise was destroyed.
But the dream was still vigorous and profoundly affected American
life, mainly because of cultural lag, partly because there was still prog-
ress in many directions and capitalism, by and large, still "delivered
the goods."

The American dream lingers on, for the lag is stubborn. But it now
experiences a crisis more serious than any in the past. For former crises
did not shatter the dream; they merely destroyed some of its ideals,
increasingly limited the realization of others, and gave still others new,
if vulgar and unsatisfactory, forms of expression. Material progress and
reform helped to sustain the dream's cultural lag; but these very forces
(the one ending in monopoly capitalism and imperialism, the other
making them acceptable to the mass of the people) prepared the con-
ditions of the decline of capitalism, which turns the American dream
into a nightmare.

For now capitalism is not merely limiting or vulgarizing the ideals
of the American dream. It is in direct revolt against them. They must
be destroyed if capitalism is to endure in the epoch of decline.* This
appears clearly from an analysis of the dream's constituent ideals.

* This is a world development. The ideals of the American dream are essentially
the democratic ideals of the bourgeois revolution. In Europe they appear in the rem-
nants of liberalism, and particularly in moderate reformist socialism. For this move-
ment, in spite of its claims to Marxism, is really built on a faith that the bourgeois
democratic ideals are capable of peaceful, gradual transformation and realization
as socialism. This forgets the scientific prophecy of Marx that capitalism would
break down and become a reaction against its own productive forces and ideals.
In all the capitalist nations of Europe the attack upon democratic ideals grows.
They are completely destroyed in Italy and Germany as wholly pernicious and unneces-
sary. The Spanish revolution embodied all the democratic ideals, which were given a
substantial radical coloring by the strong labor and socialist movement; but now, as
the workers did not completely overthrow the ruling classes, the reaction against
democratic ideals grows — not merely, feudal-clerical but capitalist reaction, for the
bourgeoisie is afraid of revolutionary action by the workers and peasants. In economi-
cally backward lands, imperialism hampers the development of bourgeois democratic
ideals or distorts them. For while, in their struggle against imperialism, the local

520 The Decline of American Capitalism

/. Liberty: The right of the individual to live his own life in his own
way (of which an earlier expression was freedom of conscience); toler-
ance as a way of life.

Always limited, and necessarily in a class society, this ideal was
identified with the possession of property. It was in its cruder aspects
an expression of competition and too often merely the liberty and indi-
vidual right of the worker to starve (and is now increasingly becoming
that). But the ideal, even in its limited realization, marks a great
achievement of civilization. Although it arose out of bourgeois neces-
sity, out of the struggle against feudal restrictions and the need for free
labor, and was accompanied by barbarous exploitation of workers and
expropriation of peasants, the ideal of liberty acquired its own loftier
meaning: the right to doubt and act, to revolt, to create new forms of
living in preference to the old. In this sense it was an upthrust of the
human spirit. One aspect of liberty and individualism, particularly in
the new world of the American scene, was the right to move freely in
an economic and social sense. The petty bourgeois fairly easily went
into business or the professions. The worker as easily changed his job,
with some chance of becoming a master. The dissatisfied and adven-
turous migrated to the frontier, creating a pervasive agrarian democracy.
These conditions invigorated independence and the "right to revolt"
glorified by Jefferson and Whitman.

A great change was wrought, however, by industrial capitalism,
whose institutional set-up destroyed, without developing an alternative,
the earlier relations of liberty and individualism based upon the posses-
sion of independent property or the ease of acquiring it.* The factory
and the farm know little of them. They have been whittled down to a
minimum by large-scale industry, although they offer the material
means for an infinitely greater and finer realization of liberty and indi-

bourgeoisie accepts the democratic ideals, it does so gingerly because of a fear of their
effect upon the masses of workers and peasants. Only the revolutionary movement of
workers and peasants accepts the ideals and gives them, under communist inspiration,
the significance of a struggle for socialism. As in Russia, the historically belated bourgeois
revolutions merge into the proletarian revolution.

♦Walter Lippmann, The Method of Freedom (1934), urges an extension of inde-
pendent property to insure freedom and democracy, as "private property was the
original source of freedom" and "it is still its main bulwark" — at a time when inde-
pendent property is anachronistic, the ownership of essentially collective property is
highly concentrated, and fascism annihilates freedom and democracy to preserve the
"rights" of property; he urges making workers members of the middle class and
strengthening that class in the interests of freedom and democracy — at a time when the
middle class is disintegrating and is used to suppress freedom and democracy. Rip
Van Winkle awoke after twenty years; Walter Lippmann sleeps on.

The Crisis of the American Dream 521

vidualism. Monopoly suppresses them. They have been Umited and
degraded by all sorts of institutional pressures in the interest of profit
and the ruling class, whose "rugged individualism" is merely a screen
for predatory practices and disregard of the masses' needs. (The widen-
ing gap between the ideal and the conditions of its realization is the
major cause of that reactionary, poisonous ingrown individualism of
the esthetes, with its contempt of the masses and life itself.) Now the
decline of capitalism makes things worse. The disemployed — where is
their liberty and individualism, or that of the employed worker, more
fearful than ever of being fired ? Liberty and the right to revolt, freedom
of conscience and its right to doubt and act against the old order,
become dangerous revolutionary ideals in the midst of a class-economic
crisis. The old order no longer "delivers the goods." Discontent must
be suppressed, the masses isolated from the influence of subversive
ideas, the individual (and the class) yoked to a new slavery. State
capitalism limits with innumerable fetters the scope of liberty and
individualism; fascism murderously tramples them underfoot, while
elevating the Hberty and individual right of the masters to plunder
and destroy.

Tolerance as a way of life? It was never very real, limited by the
strain of competitive living and class and institutional pressures. Now
tolerance breaks down as class-economic antagonisms flare up in social
war. Fascism makes /« tolerance its ideal, a system and a way of life.

2. Democracy: The right of the people to decide their own destiny
in their own interests and in their own way; faith in the creati<ve initia-
tive and action of free men and women.

Bourgeois democracy, an incomplete form of democracy because
identified with class domination, was itself always incomplete, particu-
larly where it compromised with feudalism. Its American form was
the most fully developed, primarily because of an agrarian democracy
unknown in Europe. But the class-economic basis of bourgeois democ-
racy is small independent property and petty-bourgeois rule: both are
annihilated by monopoly capitalism. Hence the decay of the democratic
spirit while the forms and ideal persist. Now the mere ideal is dan-
gerous to capitalism, and it is the object of a growing offensive.
"Democracy," according to an influential American educator, "mini-
mizes distinctions of worth, idealizes the mass, flatters the man in the
street. With the degradation of power, as the center of gravity moves
to the lower strata of the population, there is a corresponding degrada-
tion in the values of civilization." ^ His contempt of the masses is justi-
fied by ascribing evils to "the psychology of the crowd itself," as if "the

522 The Decline of American Capitalism

crowd" is an independent historical category. That is the ideology of
fascism. Even in its incomplete bourgeois form, democracy has enriched
the values of civilization, particularly the possibility of enriching them
still more. Capitalism in decline, not democracy, now revolts against
civilization and degrades its values, for it is a revolt against the ideal
of a creative democracy of free men and women.

The early American democracy encouraged revolutionary demo-
cratic struggles in other countries. It approved the French Revolution
and the democratic revolts in Latin America, demanding "hands off"
from monarchical Europe. Now the form of expression of that demand,
the Monroe Doctrine, is used to impose our imperialist domination
upon Latin America. Imperialism pursues a wholly reactionary foreign
policy. It works with the most barbarous feudal-bourgeois elements in
economically backward lands. Finance capital, with loans and other
means, supports fascist reaction in Italy and Germany. Monopoly
capitalism and imperialism replace democracy with domination and
tyranny. Nor is this limited to alien lands: for at home democracy
becomes increasingly the democracy of repression, disemployment, and
misery.

Bourgeois democracy at the beginning practically excluded the
workers, who had to fight hard and long to secure democratic rights.
Their concrete form is the right of the workers to organize and strike,
to act politically as an independent class, to struggle for a new social
order. These rights were available to the workers, although always
limited by the economic, political, and ideological terrorism of the
ruling class and on condition that they were not used for revolutionary
purposes. They did not endanger the existing order, as the capitalist
upswing induced the workers to use their rights in peaceful struggle
for reform and piecemeal social change. Now the decline of capitalism
makes the concrete democratic rights of the workers dangerous. For
the old order is breaking down; reforms and piecemeal social change
are excluded. Strikes now tend to become more aggressive and threat-
ening, class action more conscious of final objectives and means, the
struggle for a new social order a more pressing necessity and an imme-
diate revolutionary issue. Bourgeois democracy, in the "rights" it
"grants" the workers, now undermines capitalist rule where once it
was sustenance and support. State capitalism increasingly restricts the
democratic rights of the workers: it "regulates" unions and "arbitrates"
strikes, moving toward their abolition, and invigorates the persecution
of revolutionary parties where it does not drive them underground.
These measures tend toward the suppression of all independent organ-

The Crisis of the American Dream 523

ization and action by the working class and the aboHtion of all demo-
cratic rights by fascism, whose ideal is no democracy.

3. Equality: The right of all to an equal share in the fruits of prog-
ress regardless of origins; differences of racial or biological inheritance
do not justify social inequality and class oppression or exclude any
people from the highest forms of civilization.

The revolutionary bourgeoisie waged a vigorous struggle against
inequality as one condition of its coming to power; the imperiaUst
bourgeoisie wages a still more vigorous struggle against equality as one
condition of retaining power. Equality was always limited, of course,
by the class-economic relations of capitalist society. It had much of
brutal hypocrisy : the poor man and the rich man, the small thief and
the big thief were all "equal" before the law. But within the limita-
tions, there were substantial achievements, particularly those secured
by the struggles of the labor movement. The ideal of equality was a
real force in the America of the i82o's-5o's, and still more a real faith:
invigorated by the new non-feudal world, its great agrarian democracy,
and the prevalence of small independent property. As, however, the
institutional set-up of capitalism hardened, inequality became more
marked. Now the decline of capitalism sets in motion forces opposed
to even the limited realization of equality.

Decline and repression threaten the gains of the labor movement, the
workers are to become a lower caste, and their limited right to organize
and act is limited still more, if not destroyed. The Negro, who has
struggled agonizingly to secure a place in American life, is to be de-
prived of his small gains: the increase in jim-crowism and lynching is
ominous of the future. Women's rights are under constantly greater
pressure, from more discrimination on jobs and wages to consigning
them again to a medieval condition. Hatred of foreign-born workers is
inflamed; they are repressed, discriminated against, deported if engaged
in strikes or revolutionary activity, denied the "equal" rights of the
American. (The great "melting pot" is now described, in the gracious
words of two reactionary American educators, as "a very convenient
garbage pail for Europe.")^ Capitalism moves toward a system of caste
privileges for the "elite" and an equality of misery for the masses. For
under the limited economic conditions of decline the workers (and
constantly larger groups of the farmers and lower bourgeoisie) must
be thrust downward in an absolute, not merely relative, sense in order
that the "elite" may flourish.

Underlying these developments is an ideological drive in favor of
inequality, whose "scientific" justifications acquire an increasing cur-

524 The Decline of American Capitalism

rency. Inequality, according to its apologists, is conditioned by the
germ-plasm, both in races and individuals. "Innate superiority," accord-
ing to two American educators, "is the secret of the greater productivity
of the business and professional classes [who have] a higher ratio of
biologically superior individuals. . . . The degree of achievement has
[not] been conditioned to any considerable extent by the environmental
factors." ■* Not the decline of capitalism, which has outlived its histori-
cal utility and now survives only by repressing progress, but degenera-
tion of the germ-plasm may "cause society to collapse and usher in a
return of barbarism," as in the case (this is mere apologetics) of Rome
and other ancient civilizations.^ The masses are the masses because
they are unfit, the "elite" are the "elite" because they are fit. The "elite"
are to breed only with one another, the fit with the fit.* Inequality is
erected into a biological-caste system in the interests of the existing
order and its ruling class.

Concepts of inherent racial inequality, buttressed by the most brazen
distortions of biology, anthropology, and history, are used to justify
imperialism. The whites are the superior race. So they can plunder
colored peoples, butcher them, commit the most hideous crimes, impose
reaction upon them and prevent their progress to a higher civilization
The brutes must pay for being born of the wrong germ-plasm! But

* Two "cultural" American exponents of this policy, Ellsworth Huntington and
Leon F. Whitney, The Builders of America (1927), are really monomaniacal and
obscene on the subject. They cast (p. 120) longing eyes upon the feudal right of
the first night, "which gave the lord of the manor the right to demand that every
young girl on his estate spend the night with him before her marriage. A barbarous
custom? Certainly, but biologically good. The children would possess a better average
inheritance." They say (p. 115) of the feudal aristocracy's whoring: "As a rule they
took only the unusually attractive women. A letter from the King of France, or some
similar man, thanks his noble host not only for the high quality of the food and
drink, but for the attractiveness of the women. Thus the high inherent qualities of
the leading men are joined with the best stocks among the lower classes." They offer
(p. 113) an apology for polygamy: "When polygamy is highly developed a much
better biological condition would seem to prevail. [The fit] acquire wealth and power
above that of their neighbors. One of the first uses to which such wealth and power
are put is almost always to acquire a number of wives, almost certainly above the
average. . . . Put yourself in the place of a powerful chief. Would you be content
with anything but the prettiest, most charming and most intelligent wives if you had
free choice? The numerous children inherit fine qualities from both parents," These
sentiments are repeated by a German fascist professor, according to Ludwig Lore,
"Behind the Cables," New York Post, April 10, 1934: "Monogamy for life is
unnatural and harmful to the species. There are in every community willing and indus-
trious men and youths. One lusty fellow could become the mate of from ten to twenty
young women,"

The Crisis of the American Dream 525

precisely as imperialism has its class aspects — promote capitalist profit,
prevent the objective forms of a new social order developing into
socialism — so the "racial" justification of imperialism has its definite
class aspects. Both, in final analysis, are directed against the working
class. While white peoples are considered the superior race, they are in
turn divided into superior Nordics and inferior Mediterraneans, with
the Alpines in between. Now observe the ingenious class application
of a wholly unscientific and unhistorical theory: Within each white
nation there is a mingling of races. The upper class are the superior
Nordics, the middle class are the in-between Alpines, while the masses
of workers and poorer farmers are the inferior Mediterraneans. "The
cramped factory and the crowded city," according to one American
exponent of the theory, favor the "little brunet Mediterranean" and
not the "big blond Nordic."® So the workers are condemned to
biological-racial-class inferiority and subjection.

These ideas are fantastic, unscientific, brutal. That does not, how-
ever, lessen the menace, for they meet the reactionary needs of capi-
talism in decline. State capitaUsm increasingly accepts them; fascism
erects them, and other reactionary ideas, into a monstrous system of
oppression. Both within the nation and in lands under imperialist domi-
nation the mere idea of equality becomes dangerous: it has revolu-
tionary implications and must be destroyed.

The masses of workers and farmers are to become helots with a small
middle class as slave-drivers, while a still smaller upper class reigns and
enjoys.

Other races? Objects of war and plunder; if within the nation,
objects of subjection approaching extermination to prevent racial "de-
filement" (Jews in Germany, the American Negro).

Women ? They are to breed men for the wars, as cattle are bred for
the slaughter pens.

4. Mass well-being: The right of all to the good things of life, par-
ticularly the right of the mass of the people to share, and share increas-
ingly, in the conquests of industry and civilization; the abolition of
poverty.

Mass well-being has become the most important ideal of the Ameri-
can dream for the workers, because of their occupational inflexibility
resulting from constantly more rigid class stratification. The ideal was
not, however, of bourgeois origin; it was created primarily by the up-
thrust of the masses and the ideology of the labor movement arising
out of the conditions of capitalist development. Bourgeois revolutions
called the masses to action but suppressed them after the conquest of

526 The Decline of American Capitalism

power, disregarding their well-being. The industrial revolution was
accompanied by increasing mass misery; improvement o£ the workers'
lot in the epoch of capitalist upswing was offset by increasing misery
in newly developing industrial nations and in colonial lands. Yet capi-
talism, by and large, raised considerably the level of mass well-being
as a by-product of economic expansion and necessity and in response
to the struggles of labor. Not as much, of course, as among other
classes; not as much as was possible in view of the immensely aug-
mented productive forces of society. There were recurrent depressions
when mass well-being was submerged, and periods of prosperity when
the workers did not share in the gains of material progress or saw
their relative share decreased. Nor was poverty abolished, although
its abolition has been possible these many, many years. But the tend-
ency was upward, if slowly, interruptedly, agonizingly, and there was
always the hope of better things to come. Now the hope is killed by the
decline of capitalism and its crisis of the system, by mass disemploy-
ment, lower wages, and lower standards of living.

The shattering of the ideal of continuously greater mass well-being
is of the utmost significance, as the great mass of workers have increas-
ingly interpreted the American dream in terms of improvement on the
job. Now jobs become scarce and working conditions worse. Mass well-
being is replaced with mass misery, the ideal of the abolition of poverty
with a new and wholly unnecessary poverty. Capitalism returns to the
epoch of increasing misery. State capitalism gives lip-service to mass
well-being with mass relief and promises, for it clings to the old
ideology in words. Fascism brutally and cynically discards the ideal of
mass well-being. Mussolini categorically declares the "good old times"
will not return, that the nation (workers, peasants, and lower bour-
geoisie) must accustom itself to lower standards of living.^

Recompense? The glory of fascism and war, of the prison and con-
centration camp!

5. Opportunity: The right to an equal share in economic and politi-
cal opportunity, whose perpetual rebirth was assumed, unrestricted by
origins; in its more subtle forms, an aspiration after higher things.

This is the most bourgeois ideal of the American dream. It was
rooted in the demand for bourgeois opportunity to exploit the workers,
in preference to feudal exploitation. It meant essentially the opportunity
to acquire property (and to plunder others of their property). In the
earlier years of the American republic, property was comparatively
easy to acquire : if in no other way, then by staking out a farm on the
frontier. Opportunity was measurably an element in a way of life. Its

The Crisis of the American Dream 527

most important causes were the enormous need for material develop-
ment in a new world, the great increase in population, primarily be-
cause of immigration, the perpetual rebirth and expansion of the
frontier, and the swift tempo of capitalist development. The resulting
unusual social-economic growth, both in time and place, and the
fluidity it created, multiplied opportunity and the chances offered to
the more enterprising among the mass of the people.

The onward sweep of industrial capitalism provided new forms of
opportunity while limiting the acquisition of independent property to
an increasingly smaller class. But for propertiless workers, opportunity
now meant getting a job and improved working conditions; for a con-
stantly greater number of farmers it meant getting a mortgage or
becoming tenants. Opportunity in general, however, was sustained by
its new forms resulting from the upswing of capitalism, mainly tech-
nical, managerial, and professional. It became more and more a matter
of "rising" within the institutional set-up of industrial and monopoly
capitalism. Immigration was again a factor, for older Americans "rose"
because of the influx of aliens into the poorer-paid occupations. But the
great majority of workers were practically excluded. Of 18,400 indi-
viduals born around 1870 and represented in Who's Who for 1922-23,
only 1,259 or 6.8% were the children of workers.^ The son of a skilled
worker had one chance of rising out of 1,250, the son of an unskilled
worker one chance out of 37,500. This has more the appearance of a
lottery than of opportunity. Conditions in 1870, moreover, were com-
paratively favorable to "rising" among sons of the mass of the people;
thus some groups of the farmers, who furnished 23.4% of the persons
in Who's Who, prospered because of the continuous expansion of agri-
culture, the growth of cities in the newer regions in which their farms
were, and the chance of making money by the discovery of minerals
in their lands. As expansion in general slowed down, opportunity be-
came more and more a monopoly of the intermediate and upper bour-
geoisie. This is confirmed by a bourgeois study of the origins of Amer-
ican business leaders:

"Contrary to an American tradition of long standing, the typical
figure among present-day business leaders in the United States is
neither the son of a farmer nor the son of a wage-worker. . . . The
proportion of farmers' sons among successful businessmen is tending
to decrease and that of businessmen's sons (specifically, the sons of
major executives) is tending to increase. The slack created by the de-
creasing proportion of farmers' sons is being taken up not at all by
the sons of manual workers. . . . The representation of sons of major

528 The Decline of American Capitalism

executives is on the increase. If this tendency continues for many dec-
ades, the well-to-do classes [intermediate and upper bourgeoisie] will
be contributing the major share of business leaders, and the middle
classes [lower bourgeoisie, including farmers, clerks, and salesmen]
but a minor share." ®

First opportunity was limited for the working class. Then it was in-
creasingly limited for the farmers and lower bourgeoisie. Now the
further limitation of opportunity, an inescapable result of capitalist
decline, means that the existing possessors of money and power will
augment their control of diminishing opportunity. For the workers,
it means a tremendous restriction of their only opportunity: to get a
job and improved working conditions. Fascism tries to "freeze" this
situation for all time, and with the most brutal sort of repression.

Aspiration? It can only be the other-world aspiration of medieval
Christian submission — or the revolutionary aspiration for a new social
order, for socialism.

6. Education: The right to an education and faith in education as
the means for personal improvement and progressive solution of social
problems; the creator of new and finer ways of life.

This is one of the most cherished ideals of the American dream.
And in truth, after the technical-economic, capitalism has scored its
greatest achievements in education. (Particularly in terms of their
contribution to the possibility of developing a new social order.)

A revival of learning arose out of stirrings created after the tenth
century by the accumulation of technical-economic and social-economic
changes. The revival was conditioned by the emergence and develop-
ment of the bourgeoisie. But it was a revolutionary class. The ideals
and the martyrs of the new learning and of science, moreover, went
measurably beyond mere bourgeois class necessity. They stormed the
heavens. They stressed learning or education as Enlightenment: the
light of reason, the human and the rational, the freedom to break down
mental and social barriers and create new ways of life and thought
opposed to the medieval. The university, even where it was enmeshed
in the Church, was a center of resistance to feudal tyranny. Science,
with its technical and experimental approach and the new vistas it
opened up, invigorated the ideal of learning as change and mastery of
the world and of life. Underlying the ideal of education was a sense of
the perfectibility of man. (The cynic and the reactionary sneer. But
is not perfectibility a creative ideal? Its horizons recede, but they
beckon: is it not inspiring to march toward them?) The revolutionary
pioneers of bourgeois education envisaged it as the means of solving

The Crisis of the American Dream 529

social problems, of creating and realizing new ideals and ways of life.

By the 1800's, the revolutionary vigor was no more. But the earlier
ideals of learning appeared in the philosophy of mass education. Its
pioneers insisted that this was the means of transforming man and
society. This ideal was a passionate faith in the America of the
i82o's-5o's. It was embodied in the onward sweep of free public school
education, including many institutions of higher learning. Emerson
and others expressed their conviction that education meant the per-
fectibility of man, which was identified with the perfecting of democ-
racy. But this democracy turned against itself. The perfectibility of man
degenerated into practical "self-improvement" and the crotchety per-
fection of the crank and sectarian reform. Bourgeois education was
stultified by its class nature and crass utiHtarianism. A great educational
plant was built up, but its scope was limited. The public schools pro-
vided competent workers and clerks. The institutions of higher learn-
ing provided competent technicians and professionals and ideological
defenders of the existing order; on a smaller scale, they provided the
cultural gilt indispensable to a ruling class. Nor was higher learning
freely open to the mass of the people. In 1927, only 24% of American
college students were the children of wage and clerical workers ^^ (who
constituted nearly 70% of the gainfully occupied).

Yet, in spite of limitations, the educational achievements were great.
Now they are threatened by the decline of capitalism.

There was a serious breakdown in educational facilities during the
depression. In the winter of 1933-34, at least 250,000 certified teachers
were unemployed, while in many states the teachers earned less than
$400 yearly. The rural school system approached collapse, with over
5,000 schools closing in 1933. Over 3,000,000 children of school age
were not in school. Because youngsters could not get jobs, they swelled
the enrollment in high schools, but this was a mere makeshift of no
permanent consequence. Universities, with lower appropriations, cut
staffs and salaries and limited the number of students. Public libraries
were almost crippled by a tremendous shrinkage in staffs and books.
The public school situation was most serious. "Our claim," according
to one observer, "that the sons of the farm hand and the factory owner
through our public schools have the same chance to make good fades
daily further into the realm of theory." ^^

Higher education is afflicted by a crisis of overproduction, as in in-
dustry itself: by educational excess capacity. Already before 1929 the
number of trained people — technicians, professionals, intellectuals — was
greater than the market could absorb; and this was true also in the

530 The Decline of American Capitalism

case of collegians whom education prepared for the noble job of sell-
ing bonds and other merchandise. The curve of output was upward,
that of demand downward. Educational mass production created the
conditions of its doom. Higher education increasingly sloughed off its
cultural values; it merely prepared the student for a "better" job, for
"rising" in the world. Most of them were disappointed. Now the situa-
tion is much worse: overproduction mounts as demand still falls.
College students are prepared largely for disemployment, for the sur-
plus population.* Yet there is tremendous need for professional services.
There are great physical, mental, and social wants to be satisfied. Capi-
talism answers with a growing reaction against higher education, with
restriction of educational opportunity.

Underlying these developments is a crisis of education as Enlighten-
ment, a faith in reason, a revolutionary force transforming old and
creating and realizing new ways of life. These magnificent aspirations
were not fulfilled. They could not be fulfilled because of the class
nature of bourgeois education: the bourgeoisie turned against its earlier
revolutionary ideals and became reactionary. The university moved
toward the more crassly utilitarian and domination by the millionaires
who endowed it. Now and then the issue of "academic freedom" was
thrust across the march to safe and sane learning: the unavailing pro-
test, ruthlessly suppressed, of a scholar with some sense of the rebel
tradition of the university. It was a liberal protest. Now it takes another
form and becomes revolutionary. Communist and other rebel elements
among students and faculty increasingly demand the "academic free-
dom" to think, organize, and act independently on the vital issues of
the day. They are the carriers of the early revolutionary ideal of educa-
tion as Enlightenment, as the solver of social problems, as the creation
and realization of new ways of life. But the rebels are told to shut their
mouths. The police are used against them. They are thrown out of

* The desperation of the college graduate's plight is indicated by the suggestions of
Dr. Arthur E. Morgan, college president and now head of the Tennessee Valley
Authority, who, according to the New York Times, June 17, 1934, urged the graduate
to "open up new fields beyond the ranges of custom." What? "There is room for a

thousand young men to make themselves expert in preventing soil erosion

Another career is that of irrigation. [With agriculture strangled by its own surplus.]
... A young woman might build up a good business by training herself in child
care and relieving parents of the charge of their youngsters at certain hours of the day.
[This was a favorite device of women during the depression: the field is overcrowded
and pays almost nothing.] Or she might become an expert in entertaining young
people and open up a kind of community centre with the cooperation of her town.
Another opportunity for a man might be that of director of safety for a number of
small towns." This is what education and opportunity have come to!

The Crisis of the American Dream 531

college. Forcible means of suppression, hitherto reserved for the
workers, are now used against college rebels. (This objective identifica-
tion of students with the working class must become subjective and
active, for the proletarian revolution liberates education of its bourgeois
class fetters.) The crisis of education as Enlightenment appeared in
the inability to solve social problems in terms of reason, repressed by
ruling class interests and necessity. Now this aspect of the crisis appears
on an overwhelming scale in the conditions created by the decline of
capitalism. Of what avail is education in this social-economic break-
down? Of what avail against the furies of class interest, which con-
demn millions to disemployment and misery? Of what avail against
imperialism and war? Of what avail against fascism, which conjures
up the most malevolent passions of reaction to trample upon education,
upon civilization itself? Liberals still cling to education, to enlighten-
ment and reason in general. But the faith becomes more hopeless,
assumes the degrading forms of ballyhoo, turns into a prop of reaction
because it is now a flight from reality and struggle.*

In this, as in other things, capitalist decline moves toward fascism,
which completes the state capitalist tendency toward the "planned
limitation" and final degradation of education. It is a starveling and a
hireling in Fascist Italy. After fascism came to power in Germany, the
number of yearly admissions to the universities was cut from 40,000
to 16,000; education is now "based on brawn, instinct, tribal customs,
and morals, the aim to produce loyal, strong, and obedient members
of the herd called the Nazi state." ^^ Education is limited. It becomes
more and more narrowly national, negating the earlier international
character of bourgeois learning. What is left is deprived of all spirit and
initiative, of all progressive aspects: it is thrust down to the level of
black magic, to make the world safe for reaction. For the fascist war
against the masses is a war against enlightenment.

Enlightenment for the solving of social problems? That is dan-
gerous, a negation of the reaction upon which capitalism now depends;

* A similar crisis exists in science. Alongside the great theoretical advances of recent
years in science has developed an increasing restriction of its social application. The
reaction of capitalism in decline against technical-economic progress must profoundly
affect science, if for no other reason because to-day it depends upon the use of large
material means. As in the case of education, moreover, the faith in science as the
means of solving great social problems has completely demonstrated its futility. Yet
scientists still cling to the faith, but it now leads to the acceptance of religion and not
its challenge. The bourgeois revolution created modern science; only the proletarian
revolution can liberate it.

532 The Decline of American Capitalism

it means struggle against capitalism and fascism, for socialism and
communism.

Storm the heavens? Education now becomes training for storming
the strongholds of civilization and destroying them.

7. No class stratification: The right to move freely from one class to
another, including a disregard of class distinctions which colored Amer-
ican life and made it impatient of traditional restraint.

There never w^as, of course, a classless society. Yet American society
appeared measurably near it in the i82o's-5o's, when classes were fluid,
distinctions not great or fixed, movement from one class to another
freer than before or since. There was no feudal class, the older aristoc-
racy was breaking down, and the agrarian democracy was almost uni-
versal. But the "classless" ideal of petty-bourgeois democracy is
dependent upon the possession of property, which germinates the
seeds of self-destruction. Universal ownership of capitalist property
is impossible, as it arises out of a class mode of production and the
expropriation of producers. Classes were fluid, but they were there,
interlocked with the class-economic relations of capitalism. The very
factors of class fluidity — the extensive expansion of agriculture and the
speed of industrial development — moved toward class stratification : for
out of them arose large-scale industry with its propertiless proletariat
and "new" middle class, and capitalist farming with its propertiless
laborers and tenants. Class fluidity diminished after the Civil War,
although still sustained by the capitalist upswing. But fluidity was lim-
ited to "rising" within the limits of increasingly rigid class lines. The
propertiless workers, becoming the largest class, were definitely con-
signed to the lower depths. Most of the fluidity was within the "new"
middle class and on top, where the new moneybags intruded upon
the resentful older possessors of wealth. Farmers were still able to rise,
but decreasingly so. Class stratification appeared more definitely and
rigidly after the 1900's, with the slowing down of industrial and agri-
cultural expansion and the consolidation of monopoly capitalism. Some
measure of fluidity reappeared in the 1920's, but it was almost wholly
within the middle class, and class stratification was not in the least
altered. Capitalist decline has its own class fluidity, in reverse: large
groups of farmers and the middle class are objectively proletarianized,
and millions of workers are thrust downward into the "new" class of
disemployed.

Impatient of restraint ? The restraints of class stratification are multi-
plied by state capitalism: it cannot tolerate impatience with things as
they are under the conditions of capitalist decline. Fascism converts

The Crisis of the American Dream 533

class stratification into a system of caste, for that is the meaning of the
"principle" of hierarchy. Impatience becomes treason and restraint an
ideal.

8. Limited government: The right to minimum interference by the
state and faith in the creative action of the people: opposition to bureau-
cracy as a heritage of monarchy.

This was the bourgeois ideal of "that government is best which gov-
erns least," created in the struggle against the absolute monarchy, itself
a product of bourgeois development. It was never a very vigorous ideal,
for as an organ of class suppression the state must have unlimited
power. It was most cherished in the America of the pre-1850's, primarily
because of an independent agrarian democracy and of a society in
rapid motion over large, thinly settled areas. But as the motion slowed
down and more complex social-economic relations arose, government
acquired greater powers. For while the bourgeoisie might object to
monarchical state interference against its interests, it demanded state
aid in its favor. Strikes and labor revolts had to be crushed. Legislation
was necessary to eHminate abuses which threatened capitalism itself.
Monopoly capitalism and imperialism enormously enlarged the scope
of state power and action. One revealing aspect of these developments
was the increasing limitation of "state rights" in favor of the Federal
government.

Already before 1929 the ideal of "limited government" was a farce.
Now it becomes tragedy, as the decline of capitalism makes necessary
an increase in the bureaucratic and repressive forces of the state. State
capitalism must prop up the capitalist economy, repress discontent
and labor action, prepare for intensified imperialist competition and
new wars. Fascism completes this development with the "totalitarian"
state : a metaphysical conception of all within the state and for the state,
which masks the most brutal reality of the state as an organ of class
suppression. Bourgeois society starts with an ideal of "limited govern-
ment" and ends with the practice of the state as all. Apologists of capi-
talism branded socialism as "the coming slavery." Behold it in fascism!

Creative action by the people ? Always limited, it is limited still more
by state capitaHsm and annihilated by fascism. For creative action by
the people now means transforming the objective forms of a new social
order into socialism.

9. Peace: The right to peace and the peaceful settlement of disputes;
monarchical tyranny means war, while democracy moves toward uni-
versal peace.

This is the most hypocritical of the bourgeois ideals. Not merely is

534 The Decline of American Capitalism

peace excluded in a class society, but capitalism has enormously aug-
mented the destructiveness of war. The ideal o£ peace was most real
in the America of the i82o's-5o's (although it did not prevent aggres-
sion against the Indians and war with Mexico, or the Civil War, the
greatest slaughter since the Napoleonic era). It arose out of a conviction
that war was the result of monarchical tyranny, and should not scourge
the Americas. But it did. The ideal of peace acquired great strength
also in Europe, in spite of the Franco-Prussian War, during the capi-
talist upswing after the i86o's. This was particularly true in Britain,
"peaceful" because it sat on top of the world. It was, however, the
epoch of imperialism, antagonisms sharpened, and both peace and
war became instruments of policy. The older imperialist nations wanted
peace, the newer considered peace an aggression. Small attention was
paid to the "little wars" against colonial peoples, for they yielded profits
and were not particularly disturbing. But the conditions underlying
these "little wars" prepared the great catastrophe of 1914— 1918. The
more feverish the war preparations and the nearer catastrophe loomed,
the more passionate became the belief in universal peace. The United
States was drawn in by the war, in spite of its isolation in the "demo-
cratic" new world. The "war to end war" was followed by more wars,
and by the greatest war preparations in the history of mankind. Im-
perialist antagonisms are sharpening, because of capitalist decline, and
are driving toward another and more destructive world war. Produc-
tion is prostrate, but the munitions industry is active; technological
progress in general lags, but new and more murderous weapons of war
are perfected. In its struggle to prevent the objective forms of a new
social order emerging into socialism, capitalism threatens the destruc-
tion of all civilization.

One of the objectives of state capitalism, clearly revealed in the NRA,
is to augment war preparations, to "unify" the nation economically and
politically for imperialist aggression and war. State capitalism still pays
lip-service to peace, still considers war essentially as an instrument of
poUcy. But fascism, the final desperate resort of capitalism in decline,
not only augments war preparations, it makes an ideal of war.

War, according to Hitler, is to replace the vile ideals of democracy
and progress; it must become the great mission of life:

"Once more we want weapons! . . . For the reawakening of the
slumbering life-will of the nation. Then everything, from children's
primers to the latest paper, every theatre, every cinema, every bulletin
board and every empty fence wall, will be placed in the service of this
single great mission, until the fear-prayers of our present pseudo-

The Crisis of the American Dream 535

patriots, 'Lord, make us free!' will be changed, even in the brain of
the smallest boy, to the glowing appeal: 'Almighty God, bless our
weapons for the future; be just as you have always been just; judge
now whether we are worthy of freedom. Lord, bless our struggle!'"

War, according to Mussolini, is a biological function and the supreme
creative force:

"War is to man what maternity is to woman. From the philosophical
and doctrinal viewpoint I do not believe in perpetual peace. Only a
sanguinary effort can reveal the great qualities of peoples and the
qualities of the human soul." ^^

These reactionary and barbaric ideas are not new. But until now
they were primarily the psychopathic ravings of small groups, useful
on occasion as ideological trimming for war as an instrument of policy.
States paid at least lip-service to peace. For the fascist, however, war is
not merely an instrument of policy, it is an ideal, a thing of beauty
and a joy forever. Unlimited powers of coercion are used to impose
the ideal upon society. Fascism means war upon the masses, war upon
other peoples and cultures, war as a way of life.

To what end? That dying capitalism may writhe a bit longer in
its death agony. To prevent the birth of a new social order.

10. Progress: The right and possibility of unlimited progress, the
synthesis of all the preceding ideals; a steady, inevitable upward move-
ment to new and finer fulfillments.

The bourgeoisie wrought the idea of progress, a concept of the utmost
creative significance. It arose out of the struggle waged by the new
bourgeois class against feudalism on all fronts: economic, political,
cultural. Social relations had to become different, to change, to move.
But not mere motion: it was a concept of development, of continuous
upward movement to new objeciives. As the bourgeois revolution
thrust its ideals beyond immediate class objectives, so the idea of prog-
ress soared beyond its class-economic origins. It released the forces of
the human will, created a new approach to the world, made man feel
himself capable of mastering his fate.

Faith in progress was particularly vital in the American dream. It
was invigorated by a new world taking shape in the wilderness, by an
almost complete shattering of the fetters of the past, by an extraordi-
nary economic development and its progressive accompaniments. The
ideal arising out of these conditions is thus expressed by Dr. Charles
A. Beard:

"Underlying all is a beUef that the lot of mankind can be continu-
ously improved by research, invention, and taking thought. This is the

536 The Decline of American Capitalism

philosophy of progress. . . . All legislation, all community action, all
individual efiFort are founded on the assumption that evils can be cor-
rected, problems solved, the ills of life minimized and its blessings
multiplied by rational methods, intelligently applied. Essentially by
this faith is American civilization justified." ^^

This ideal was always limited and distorted in practice. It is now, in
its bourgeois form, a mere pitiable echo of what has been and a tragic
ignoring of what might be. For Dr. Beard speaks (in 1932!) as if the
ideal was now in action: but what a mockery of progress, of the
rational and intelligent, is the social-economic breakdown created by
the crisis of the capitalist system! Dr. Beard speaks as if capitalism is
identified with progress everlasting: but capitalism, limiting progress
even in the epoch of upswing, now in its decHne openly revolts against
progress and all its works, because they undermine the existing order.

The revolt against progress originates in the movement of economic
forces. Capitalist progress emphasizes the material. While crudely
interpreted as mere money-making by the bourgeois, material progress
transformed the old world and set in motion forces of ideological
change which reacted on the general movement of social progress. But
this was conditioned by class-economic factors. It was a response to
the needs of the bourgeois economic order, whose upthrust and de-
velopment destroyed old relations and created new ones. The under-
lying driving force was the self -expansion of capitalist production: the
production and reaUzation of surplus value, the development of larger
markets, the industrialization of new regions. The moment comes,
however, when economic progress is limited by the movement of capi-
talist production itself. Production and realization of surplus value move
downward because of the increasingly higher composition of capital
and mass disemployment. The productivity of labor creates an abun-
dance which presses upon contracting markets and endangers profit.
IndustriaHzation of new regions is either completed or prevented by
the contradictions of monopoly capitalism. Capitalism is undermined
by the very productive forces it called into being. The formerly rela-
tive self-destructive character of capitalist production now becomes
absolute. It resorts to limitation of output on a mass scale : repression of
the productive forces of society. Out of decline and decay arises the
capitalist revolt against economic progress.

The revolt against economic progress becomes an ideological revolt.
Progress means the continuous upward movement of society. But capi-
talism is not eternal; it is not immune to the law of social succession.
Basing himself on the idea of progress and its manifestations in the

The Crisis of the American Dream 537

dialectical movement o£ capitalist production, Marx saw the relations
of a new social order developing within the shell of the old. CapitaUsm
created collective or social forms of production, the objective basis of
socialism. The capitalist bourgeoisie moved and had its being by creat-
ing the industrial proletariat, the objective carrier of socialism. As this
dialectical movement appeared more clearly, threatening the old order,
the bourgeois idea of progress began to change. Where formerly it
included the revolutionary transformation of an old social order by
the new, progress was now limited to mere change and pedestrian
reform within the existing order. Among small but important intel-
lectual groups a whole philosophy arose embodying a reaction against
progress: limiting, scoffing, rejecting, mobilizing all the resources of
the human mind to prove that progress was a delusion and a snare.
Now the philosophy opposed to progress is seized upon by the capi-
talist class. For capitalism has outlived its historical utility. It is in the
epoch of decline and decay. Progress is now realizable only in a form
which endangers capitalist rule, by socialism releasing the creative
social-economic forces of society, by the revolutionary struggle for
power of the proletariat and its allies. Hence capitalism reacts against
progress on all fronts: economic, political, cultural. Progress now again
means the necessity of revolutionary change.

State capitalism clings to progress in words. But where is it in prac-
tice? The real job of state capitalism is to prop up the old order, to
make it more resistant to progress, or socialism. State capitalism merely
tries to "freeze" the breakdown and decay of capitalist decline. This
eventually manifests itself in the fascist repudiation of the idea of
progress. Fascism fuses into a system all the old reactionary ideas
opposed to progress and deliberately moves backward to revival of a
mixture of Caesarism and medievalism, which was emphatically re-
jected by the revolutionary bourgeoisie. Reaction becomes a faith and
retrogression its works.

New and finer fulfillments? They are doomed by capitaUst decline
and decay. New and finer fulfillments of progress are potential only
in the revolutionary struggle for power, for socialism and communism.

Thus capitalism is driven to revolt against progress and all the other
ideals of the American dream and of the bourgeois revolution. Now, in
ideological form, the forces which sustained capitalism turn into their
opposites and become its antagonists. For the ideals, seizing upon great
masses, are an historical force. The masses beUeve in them and want
them realized, having measurably identified them with their own
mixed, groping, yet definitely plebeian aspirations. Cultural lag is iden-

53B The Decline of American Capitalism

tified with the bourgeois form of the ideals, with faith in the possibility
of their realization in the existing order. As capitalist decline increasingly
limits their already incomplete realization and moves toward their
destruction, including destruction of the concrete democratic rights of
the workers, the ideals become dangerous, for it is impressed upon the
masses that they are realizable only in new forms and in a new social
order.

This is the crisis of the American dream, underlying the class-
ideological crisis created by the decline of capitalism. The crisis prepares
the subjective conditions of fundamental social change. For the objec-
tive clash between the old and the new order must become a conscious
class struggle, which transforms the quantity of accumulated social-
economic changes into the quality of revolutionary action for the new
social order. A class, in this case the proletariat, cannot become revolu-
tionary and perform its historic task, cannot carry on the struggle for
power, until it has broken the ideological fetters of the old order: it
must replace the old faith with its own consciousness and ideals, and
make the new world they express acceptable to the other exploited
elements of society.

The ideals of the American dream, of the bourgeois revolution,
become an ideological factor in the struggle for power. Ideology is itself
a social force. The liberal middle class wants to "save" the ideals by
"more generous" distribution of small independent property, clinging
still to a petty-bourgeois world which monopoly capitalism and im-
perialism have destroyed. Moderate reformist socialism wants the
peaceful, gradual development of the ideals toward a new order, and
is, along with them, annihilated by fascism. The capitalist bourgeoisie
wants to retain and "revive" the ideals as ideological trimming while
increasingly limiting them in practice, or completely destroying them
by resort to fascism and its "ideal" of negating progress. The com-
munist proletariat wants to transform and realize them in the newer
and finer fulfillments of socialism, precisely as it wants to transform
and more fully realize the material promise of capitalist production.
This is possible only after the conquest of power by the revolutionary
proletariat and the overthrow of capitalist rule. The "self-movement"
of the progressive forces of capitalism, particularly in the epoch of
decline, does not lead, as petty-bourgeois radicalism and moderate
socialism believe, toward a new social order: for state capitalism
tramples upon the progressive forces and fascism suppresses them.
This is inevitable as long as capitalism holds the repressive powers of
the state : it will not yield up the powers peacefully but must be forcibly

The Crisis of the American Dream 539

deprived of them. Only revolutionary action can do this, only the dic-
tatorship of the proletariat can uproot capitalist relations, suppress any
upsurge of reactionary elements, and set in motion an uninterrupted
movement toward the new social order of socialism.

Unlike fascism, which makes dictatorship an ideal and eternal, com-
munism considers the dictatorship of the proletariat as wholly tempo-
rary and functional, necessary only to consolidate the revolutionary
power and create the relations of the new social order. UnHke fascism,
which repudiates progress and all its ideals, communism accepts them
as historical forces in transition (bourgeois society is the most transi-
tional of all social systems) toward new forms and fulfillments, cleans-
ing them of the elements and limitations identified with class
exploitation and property. . . . Liberty and individualism are deprived
of all meaning in terms of economic individualism and the liberty of
one class to exploit another. No ingrown class forms of either which
deny them to the mass! Economic collectivism liberates the human
and cultural forces of liberty and individualism and makes them
accessible to all. . . . Democracy is proletarian democracy, embracing
the immense majority of the people; made complete and habitual by
socialism, it becomes the freedom of communism. . . . The abolition
of classes makes possible the abolition of social inequality: first the
enormous inequality of capitalism, then the lesser inequality of the
socialist transition period. Differences of individual endowment do not
give the right or the power to exploit others, but are merely the source
of variations in the human and cultural symphony of society. . . . Mass
well-being: it is the primary objective, no longer limited by class rule
and profit. . . . Opportunity ceases to be identified with rising over
the masses or the acquisition of property: it is a mass opportunity to
share in life fully and greatly. . . . Education, its class fetters broken,
is creative mass preparation for a way of life, the union of labor and
culture. Its scope grows immensely; with abundance and leisure mass
participation in higher learning moves on until it is universal. Socialism
is mastery of the world and life: hence the emphasis on education.
. . . There is no class stratification, as classes are abolished. . . .
Where capitalism starts with the "ideal" of limited government and
ends with the all-devouring "totalitarian" state of fascism, socialism
starts with the dictatorship of the proletariat and ends with the disso-
lution of the state into the community of integrally organized pro-
ducers, manual and mental. For sociaHsm needs a state only so long
as there is capitalist reaction to suppress, national and international.
. . . Peace ceases being merely an aspiration; it is fully realizable when

540 The Decline of American Capitalism

class-economic antagonisms are wiped out on a world scale. . . . Prog-
ress, freed of its class limitations and antagonisms, acquires a new
spirit, becomes the object of deUberate aspiration, planning, and fulfill-
ment. Culture, always limited and exclusive and now threatened by
capitalist decline, experiences an immense quantitative and qualitative
upsurge.

That is the promise of the proletarian revolution and communism.
It is a promise whose elements already exist, alongside their reactionary
opposites, within capitalist society, repressed by the old order but poten-
tial of the new: they need only to be released to move onward to the
society of the free and equal.

CHAPTER XXVI

The American Revolution

Jl HE decline of American capitalism and its class-ideological crisis
set in motion the forces preparing a new American, the coming com-
munist, revolution. Apologists insist that revolution is alien to the
traditions of the American people. That means simply this: revolution
is now alien to the exploiting and decaying capitalist class whose
interests are rationalized by the apologists and menaced by revolution.
Revolution has played a decisive part in American development.
Colonial migrations were thrust forth by the developing bourgeois
revolution in Europe and its transformation of the old feudal order.
Some of the most fundamental and uncompromising aspects of the
revolution were represented by the Puritan settlers. Their ideals of
individual and social freedom, created in the struggle against the old
order, were progressive in spite of their theological forms and class
limitations. Many Puritan sects broke through the limitations and
urged equalitarian democratic reforms, including in some cases owner-
ship of property in common. Colonial class struggles produced several
minor revolts. The bourgeoisie secured its independence of Britain by
means of revolution, and sounded the tocsin for the French Revolu-
tion of 1789. The revolutionary American bourgeoisie organized itself
as a practical dictatorship. Nor was it bothered by the fact that it repre-
sented a militant minority only, for roughly two-thirds of the people
were either indifferent or actively antagonistic: the opposition was vio-
lently coerced, where necessary, and Loyalists were expropriated. Tom
Paine and Sam Adams were professional revolutionists who deliber-
ately and consciously planned the revolution through years of agitation
and organization.'*'' The Committees of Correspondence were really a

* "Two — Samuel Adams and Thomas Paine — may almost be called professionals,
save that their interests alone employed them. Emerson's explanation of great men
illuminates our knowledge of these two: 'Every master has found his materials col-
lected, and his power lay in his sympathy with his people and in his love of the
materials he wrought in.' At hand for their use were the accumulated discontent of a
hundred and fifty years' restive development under English control, the turbulent
forces creating the inchoate Americanism they perceived, and the eighteenth century
compact philosophy that was to make them free. To unite all America in one pulsating
hope, to vitalize that hope with the new philosophy, this was their task. They could

541

542 The Decline of American Capitalism

revolutionary party measurably aware of purposes and means, includ-
ing the extra-legal. Shays' Rebellion, an agrarian revolt against reaction-
ary class aspects of the new government's policy, led Thomas Jefferson
to hope there would be a rebellion every twenty years, because "the
tree of liberty must be refreshed from time to time with the blood of
tyrants." After independence was secured, the French Revolution be-
came an ideological rallying force in the American struggle between
"the masses" and "the classes." The new republic encouraged revolu-
tions in Latin America, declared it would oppose European efforts to
restore or extend colonial rule, and became the refuge of political
exiles.

In the essentially revolutionary struggle of the Civil War, the bour-
geoisie completed its revolution by destroying the slave power, indus-
trial capitalists acquired control of the government, and the conquest of
power was implemented by the ruthless dictatorship and expropriation
of Reconstruction. Then the dominant capitaHst class set itself as flint
against revolutionary ideas (which, in the case of the Civil War, had
been forced to break the barriers of an inept, cowardly policy of com-
promise with the slave South). The dominant class increasingly re-
jected the older ideals of liberty and democracy, while imperialism
made the United States an international reactionary force instead of a
progressive one. Sam Adams, the organizer of the American Revolu-
tion, had long since been thrust into obscurity. Now they "reinter-
preted" Reconstruction, which offers the proletariat an example of
dictatorship and force, and blackened the character of Thaddeus
Stevens, the most revolutionary and implacable enemy of slavery. Yet
they cannot alter the indisputable historical fact: the American bour-
geoisie rose to power by means of one revolution and consolidated that
power by means of another. . . .

Revolutions are inevitable. That is the conclusion of a bourgeois
student of the "natural history" of revolution. Social-economic and class
forces develop to a point where a sharp revolutionary break becomes
necessary. The conclusion is thus amplified:

"This country, in common with all others in which the industrial

succeed, for they had a secret knowledge of what the people thought, wished, feared,
and hated, and the power to interpret for the public 'its own conscience and its own
consciousness' — therein lay their strength." Philip G. Davidson, "Whig Propagandists
of the Revolution," American Historical Review, April, 1934, p. 443. These are
the background and the course, under other class-economic relations and with other
class purposes, of the communist agitators and organizers who prepare the coming
American proletarian revolution.

The American Revolution 543

revolution has developed, is destined to evolve through capitalism into
some sort of social control of industry. ... A laboring man of to-day
is a person still insignificant compared with the capitalist. But through
the agency of his organization he is superior to the farmer. The labor-
ing man seems destined to be the ruler of the future. . . . We may
take it for granted that revolutions, even violent revolutions, will occur
periodically for a long time to come. We hear some talk of substituting
peaceable evolution for violent revolution, but such talk is only what
the theologians call pious opinion' — laudable, but imaginative. No tech-
nology is being developed for the purpose of translating this talk into
action." ^

The bourgeois student of revolutions portrays their characteristics
in meaningless social-psychological terms: the Puritan revolution was
"pious," the American "mild," the French "ferocious." But all three
were manifestations of the onward sweep of the bourgeois struggle
for power. The piety of the Puritans did not prevent the execution of
a king nor the use of dictatorship and force to crush the opposition,
while the two American revolutions were far from mild in suppressing
and expropriating their enemies. Revolutionary force is conditioned
almost wholly by the scope and intensity of the old order's resort to
violence to regain its power.

In terms of history and sociology the "natural history" of revolutions
must include:

1. The general character of revolutions, the aspects which determine
their unity in cause, purpose, and means. This unity indicates that they
are an historical series, one revolution arising and succeeding another
out of the same general conditions as an inescapable determinant of
social progress.

2. The specific character of revolutions, the aspects which determine
their diversity in cause, purpose, and means. This diversity expresses
the differences distinguishing one revolution from another in class
make-up, purposes, and operating conditions.

The general unity of revolutions appears in the fact that they are a
completion of fundamental social-economic changes. At the basis of
revolution is the development of new forms of production and their
increasing clash with the old, not merely in their technical-economic
but in their class-political aspects. The clash might be resolved in terms
of necessity and efficiency if technology and economics were the only
conditioning factors and not themselves conditioned by a series of other
factors. The technical-economic foundations of the clashing forms of
.production are interwoven with definite class, cultural, and political

544 The Decline of American Capitalism

relations and institutions. Consequently the clash between old and new
is resolved socially, by means of the class struggle and its economic,
cultural, and political impacts. Economic, as old and new forms and re-
lations of production clash; cultural, as the dominant culture and ideol-
ogy represent the older relations of production, class interests, and class
rule, against which arises the cultural and ideological revolt of the
class representing the new relations of production; political, as the
class struggle, the purposive or "subjective" factor in social change and
revolution, is directed toward the retention or conquest of political
power. Two general sets of factors underly the revolutionary struggle :

The long-time factors of revolution — the accumulation of economic,
cultural, and political changes arising out of the development of new
forms and relations of production, a new social order, within the shell
of the old; this increasingly saps the foundations of the old order and
prepares the objective, or class-economic, and the subjective, or class-
ideological, conditions for a revolutionary overthrow.

The short-time factors of revolution — the accumulation of economic,
ideological, and political changes, which aggravates contradictions and
antagonisms arising out of an intensified clash between the old and new
forms and relations of production; this results in decline and decay,
and, as the ruling class fails to "deliver the goods," mass faith in the
old order breaks down and provides the revolutionary class with the
opportunity to strike for the conquest of political power.

But within the general unity of revolutions there is a diversity which
does not contradict the unity but historically complements it. Unity is
in the purpose, the conquest of political power and the consolidation
of the new order; diversity is in the means adopted to accomplish the
purpose and in the forms of the new order. Means change because of
changes in the technical-economic foundations of production and its
social relations, in class alignments and political forms, in the char-
acter of the revolutionary class; the two constants in the means, force
and dictatorship, change in their bases, application, and class objectives.
The most fundamental difference in means is determined by the fact
that the bourgeoisie was a propertied class, the proletariat is a non-
propertied class.* The fundamental difference in forms of the new
order is this : Bourgeois revolution meant the rise to power of another
propertied, exploiting class and a new system of class rule and exploita-
tion: capitalism represents partly and only for a time the progressive
forces of society, stifles new progressive forces, and eventually reacts

* This subject was discussed in Chapter XXIV, "State Capitalism, Planning, and
Fascism."

The American Revolution 545

against progress to maintain its rule. Proletarian revolution means
the rise to power of a non-propertied, non-exploiting class and the
resulting abolition of class rule and exploitation: socialism represents
cdl and continuously the progressive forces of society, and liberates the
forces of the onward movement toward the higher social system of
communism.

While the major aspects of diversity are determined by differences in
the successive revolutionary classes and the new social-economic condi-
tions under which they operate, there are minor aspects of diversity in
the revolutions of a particular class. The classical bourgeois revolutions
were marked by considerable diversity within the limits of their essen-
tial unity. A belated bourgeois democratic revolution in Russia was
succeeded almost immediately by the proletarian revolution. In colonial
and semi-colonial lands, the bourgeois democratic revolution is now
bound up with the anti-imperialist struggle for national liberation and
the independent revolutionary upsurge of the workers and peasants.
National differences in class-economic development, traditions, and
ideology also impart diversity to the proletarian revolution, although
it is much more unified than its predecessors.

One of the most important aspects of the diversity of revolutions is
an acceleration of the revolutionary process, progressively shortening
the intervals between one revolution and another. This is the joint
result of differences in the technical-economic foundations of society
and of an increasingly purposive character in revolution involving a
larger awareness of purposes and means.*

The revolutionary process was extremely slow, almost non-existent,
in the ancient world. A commercial bourgeoisie arose, but it was unable
to break through the barriers of the old order (this was also true later,
and on a much larger scale, in India and China). CiviUzation after
civilization stagnated or collapsed because of the slow growth of new
social-economic forces. The class struggles which rent the Roman
Empire for 500 years resulted in "the common ruin of the contending
classes," ^ in spite of the economic beginnings of serfdom which antici-
pated feudalism : the Empire broke down under the weight of its inner

* Cultural borrowing and diffusion are important factors in the increasingly pur-
posive character of revolutions. France secured many of its revolutionary ideas from
England, vv^hich in turn had borrowed from the Italian and Dutch bourgeoisie. The
ideology of the American Revolution was imported bodily from Europe. Yet the
bourgeoisie to-day objects to "foreign" ideas of revolution! While cultural borrowing
and diffusion were present in the bourgeois revolutions, they appear most clearly and
creatively in the proletarian revolution, particularly the Russian. They are of excep-
tional creative significance in economically backward lands.

54^ The Decline of American Capitalism

decomposition and the outer impact of the barbarian invasions (the
whole constituting a social revolution). Although feudalism had a
shorter span of life than the ancient w^orld, it endured nearly i,ooo
years before a revolutionary process began v^ith the rise of the bour-
geoisie, whose free towns and free wage labor upset feudal-serf rela-
tions. Within 300 years in England and 400 years in France, the
bourgeois revolution was triumphant; 100 years later, capitalism, domi-
nating the world, began to decline and decay. Acceleration was marked
in the bourgeois revolution and its social changes. It is still more
marked in the proletarian revolution. Capitalism was challenged in
1848, by a small insignificant group of communist exiles who issued
the Communist Manifesto. The proletariat was a small class, isolated,
brutally exploited, despised. Yet, with the creative insight of scientific
understanding, Marx saw in the proletariat the class destined to over-
throw capitalism, end class rule and exploitation, and transform the
world. This was sheer madness to the vulgarly comfortable bourgeois
and philanthropic reformers. But the proletariat was the typical,
permanent class creation of capitalism, a class growing in numbers,
organized by the mechanism of capitalist production itself, becoming
increasingly aware of its revolutionary tasks. Seventy years after the
Communist Manifesto was issued, the proletarian revolution was tri-
umphant in Russia, the Soviet Union celebrated its sixteenth anni-
versary fifty years after the death of Marx, and now capitalism
everywhere is not merely challenged but threatened by international
communism. Acceleration is cumulative.

Objectively, the acceleration of the proletarian revolutionary process
is determined by the constantly swifter tempo of technical-economic
change under capitalism and its impact on social relations. Former
social systems were comparatively static, capitalism is demoniacally
dynamic, its technical-economic conditions perpetually changed by the
technological application of science and the pressure of accumulation.
Capitalist production must expand or break down. Yet capitaHsm itself
develops the forces which impose iron fetters upon its expansion. This
appears in relative form in the increasingly disastrous cyclical dis-
turbances, and in absolute form in the decline and decay of capitalism.
Decline and decay flourish in the midst of all the class-economic fac-
tors necessary for the transition to a new social order: the collective
forms of production, which are the objective basis of socialism, and
the proletariat, which is the carrier of socialism. Capitalism is not
merely transitional, it is the most transitional of all social systems. It
has neither the economic nor the cultural stability and "wholeness"

The American Revolution 547

of earlier systems; more than its predecessors, capitalism is driven on-
ward by social-economic change. Any society based on class antago-
nisms must end in revolution or decline. But capitalism endures least
of all. It is driven mercilessly and swiftly to create its own negation.
It is merely a promise of socialism. Precisely because it has been the
most progressive of systems, capitalism speeds up the process of social
change and revolutionary action.

Subjectively, the acceleration of the revolutionary process is de-
termined by the constantly more conscious and purposive factors
in revolution. There was no awareness of the purposes and means
of revolution in the ancient world. Awareness appears in the bourgeois
revolutions, if incompletely and mainly in the later phases. The con-
scious and purposive factors appear completely only in the proletarian
revolution, for Marxism-Leninism, which is communism, is scien-
tifically aware of the laws of social development underlying and con-
ditioning program and action. Because of awareness of purposes and
means, immediate and final, Marxism-Leninism consciously and crea-
tively acts upon class-economic forces to accomplish its purposes. It is no
longer largely a case of the impact of social forces upon revolutionary
purposes and means, but of the impact as well of purposes and means
upon social forces. Awareness becomes itself a social force. This mani-
fested itself on a magnificent scale in the proletarian revolution in
Russia, where Bolshevik awareness of purposes and means creatively
acted upon the class-ideological crisis produced by an unusual com-
bination of circumstances to accelerate the revolutionary process, to
drive on to a socialist conclusion while mechanical Menshevik "Marx-
ists" insisted that only a capitalist conclusion was possible and advis-
able. Marxism is a form of social engineering.''^ Man, the worker,
dominates this revolution.

* But in only one of its aspects. The engineering aspect of Marxism, which is simply
the concrete application of its scientific awareness, is not the whole of Marxism, nor
does it imply acceptance of science to the exclusion of philosophy. Engineering is
merely the technological application of science; it does not set goals but realizes goals
set for it and with the means science and society provide. Hence engineering may be
distorted for stupid and reactionary ends. As science expands, the necessity of a
philosophical synthesis becomes increasingly apparent, and it is only the pedestrian or
reactionary scientist who casts loose from philosophy (or seeks to restore Deity in
the universe under new forms). The engineering aspect of Marxism is the concrete
expression of the unity of theory and practice, based upon a conception of history,
economics, and society and a method of revolution, all implemented in the philosophy
of dialectical materialism. A whole cultural revolution is involved in the social-economic
reorganization envisaged by Marxism, whose essential oneness appears in the creative
unity of its philosophy.

548 The Decline of American Capitalism

This communist awareness o£ purposes and means is becoming a
creative social force in American society, which is definitely moving
toward the conditions of a revolutionary struggle for power. The
struggle has been slow in coming, primarily because the unusually
swift tempo and great magnitude of American economic progress
checked and distorted the elements o£ proletarian class-consciousness
and action. But the tempo and the magnitude, now in reverse action,
will henceforth as effectively hasten revolutionary action as formerly
they retarded it. They make the crisis and its pressure more acute.
Nowhere are the collective forms of production as highly developed;
nowhere is the clash as sharp between them and the older relations
o£ individual ownership and appropriation. The new order strains
insistently against the class-economic fetters of the old relations. The
new revolutionary class strains insistently against the class-ideological
fetters restraining its independence and action. Communist awareness
intervenes in a situation which is the product of the whole develop-
ment of American society. The immediate factors involved are five-
fold:

1. Capitalist decline and decay create a crisis of the system which
throws society into convulsions, breaks down faith in the existing
order, and sets the various classes in motion toward a struggle for
power.

2. The upper bourgeoisie, the financial capitalists and their under-
lings, clings to power and attempts to thrust all the burdens of decline
upon the workers, farmers, and lower bourgeoisie. Repressive measures
are multiplied and imperialism is intensified as a way out of the
crisis.

3. The farmers are inescapably entangled in the agricultural crisis,
increasingly deprived of their propertied independence. They cannot
escape under capitalism and by their own efforts. The farmers are
incapable of initiating an independent historical program and struggle,
but must ally themselves with some other, more powerful class.

4. The middle class, tormented by decreasing opportunity and in-
creasing insecurity, its members more and more thrust down into the
surplus population, begins to initiate and support new reform move-
ments, including state capitalism and national economic planning. As
the middle class is incapable of initiating an independent historical
program and struggle, it must ally itself with some other, more power-
ful class.

5. The industrial proletariat and the other groups of the working
class, beset by unemployment, lower standards of living, and repres-

The American Revolution 549

sion, emerge as a class conscious of itself and waging war upon
capitalism, its awareness of purposes and means constantly broadening
and deepening until it engages in the revolutionary struggle for power
under communist leadership.

In the struggle for power the two decisive classes are the proletariat
and the upper bourgeoisie (who struggle for hegemony over the other
classes and groups) — the one as representative of the relations of the
new social order, the other as representative of the old. The interests
of the proletariat are class interests, but they express the progressive
interests of society in general. For if the revolutionary workers do not
act, if the basic economic drive of capitalism — ^production and realiza-
tion of surplus value, the accumulation of capital — is left to work
itself out unchecked, then decline and decay must doom civiHzation
itself. Hence the significance of the proletariat as the carrier of the
new social order, of socialism.

The struggle is irreconcilable as it represents the clash of two systems.
If capitalism prevents the emergence of socialism, decline and decay
must ensue. If socialism emerges, capitalism is crushed. Liberals who
catch ideas on the wing, combine them haphazardly, never bother with
fundamentals, and scornfully reject the Marxist analysis of class-
economic forces, antagonisms, and development — these liberals propose
to "reconcile" the struggle, combine the "best" features of capitalism
and socialism: "Beyond lies the struggle between the systems called
communism and capitalism, Russia being champion of one, the United
States of the other. . . . Both systems in the last analysis have similar
goals, of which the most immediate and important is the abolition
of poverty [!] . . . Conceivably the two systems might ultimately fuse
into one basic pattern. In it the best features of both private enterprise
and state control would be retained."^ This is state capitalism, the
bastardized socialism used by the ruHng class to maintain its power.
It is not the "fusing" of two systems "into one basic pattern." It is
merely an aspect of the capitalist struggle for power, against which
the proletariat must thrust its own revolutionary force and Marxist
consciousness.

But, answer the liberals, Marxism is alien to the "American mind,"
an imported ideology. Yet the "American mind" of the colonial era
accepted an imported revolutionary ideology that met the needs of
the rising bourgeois class. The social or national "mind," moreover,
changes in accordance with changes in social-economic relations and
class needs. An ideology may linger beyond its material basis, but
only precariously and under sentence of death. The "American mind"

550 The Decline of American Capitalism

has accepted ideas and institutions which it subsequently rejected, and
this process has not come to a standstill (except in the minds of the
ruHng class and its apologists) . Marxism is alien neither to the Ameri-
can nor any other national "mind." For Marxism is the scientific, dy-
namic, always enriched crystallization of the needs and experiences of
the working class in its struggle for emancipation, and it is acceptable
to any working class moving toward the struggle for power.

They say the American labor movement has no Marxist or revolu-
tionary traditions. But this, even // it were true, is not particularly
relevant. Revolutions do not arise because of revolutionary traditions,
and they may arise without any traditions. A class in action to over-
throw an outworn social order creates its own revolutionary traditions.

The implication is not merely that American labor has developed
on a non-Marxist basis, but contrary to the Marxist analysis of the
class struggle and its revolutionary function. This is a complete mis-
understanding both of the American labor movement and of Marxism.

One may say with strict Marxist accuracy: the development of
capitalism creates the objective conditions for sociaHsm by socializing
production and making the proletariat the most important class
economically; the pressure of capitalist exploitation forces the workers
to organize against the exploiters in an independent class movement;
struggle and experience, plus the theoretical activity of the more con-
scious and revolutionary minority, impart to the labor movement in-
creasingly larger objectives, militancy, and awareness, until eventu-
ally it initiates a revolutionary struggle for power and the overthrow
of capitalism.

This formulation apparently excludes the American labor move-
ment. Capitalism was most highly developed in the United States, yet
the revolutionary aspects of its labor movement were insignificant. But
the Marxist conception is more dialectical, richer, more varied than
its general formulation, which characterizes the main features of a
whole historical epoch. Within this epoch, pecuHarities of national
development due to the uneven growth of capitalism, cultural lag,
and other factors may temporarily produce combinations apparently
contradictory of the general formulation: capitalism + proletariat =
revolutionary labor movement. Marx himself said:

"The specific economic form, in which unpaid surplus labor is
pumped out of the direct producers, determines the relation of rulers
and ruled, as it grows immediately out of production itself and reacts
upon it as a determining element. . . . The form of this relation be-
tween rulers and ruled naturally corresponds always with a definite

The American Revolution 551

stage in the development of the methods o£ labor and of its produc-
tive social power. This does not prevent the same economic basis from
showing infinite variations and gradations in its appearance, even
though its principal conditions are everywhere the same. This is due
to innumerable outside circumstances, natural environment, race
peculiarities, outside historical influences, and so forth, all of which
must be ascertained by careful analysis."*

It was primarily the pecuUarity that Britain, from 1870 to 1900, had
almost a monopoly of imperialist exploitation, in the profits of which
the upper layers of the working class shared, that retarded the growth
of a class-conscious labor movement. This peculiarity of economic
development intensified the separation of organized skilled workers
from the unorganized unskilled, while the prevailing class relations
permitted an alliance between laborites and liberals. Yet out of the
pressure of events and capitalist decline emerged a class labor move-
ment, which to-day objectively challenges capitalism and whose re-
formist limitations and frustration project the necessity of communist
struggle and revolution.

What are the peculiarities of the American labor movement and
how are they explicable in terms of concrete application of the Marxist
conception ?

The development of the labor movement in the more industrial
nations of Europe may roughly be divided into three stages:

1. The stage of militant revolt against the horrors and increasing
misery of the earlier industrialism. Workers went beyond their imme-
diate economic needs and developed revolutionary aspirations; they
acted as the left wing of bourgeois revolutions (France, Germany)
and appeared as an independent class on the social scene. At this stage
the theory and tactics of Marxism appeared. The stage ended with
the collapse of the First International, the workers beaten back by
insufficient class strength and the economic upswing of capitaHsm.
The Paris Commune marked the end of an epoch — although it also
projected the new epoch of proletarian dictatorship.

2. The moderate stage of the organization of labor (trade unions,
socialist party) and improvement of its conditions, made possible by
the upswing of capitalism. Nevertheless, the labor movement had a
conscious class and even socialist character. This was not only due to
socialist agitation, but to the rigidity of class lines and isolation of the
workers from the peasantry and the middle class, forcing them to
depend upon their own class action. Socialism, however, was given a
moderate reformist slant : it was the carrier of petty-bourgeois democratic

552 The Decline of American Capitalism

reform (because of incomplete bourgeois revolutions and feudal hang-
overs) and transformed Marxism into a theory of "social revolution"
by means of gradual, progressive reforms, of "growing into" socialism —
which in practice meant growing into state capitalism and imperialism.

3. The revolutionary stage, during which the proletariat returns to
its earlier miUtancy on a higher level.* It coincided with the begin-
nings of the decline of capitalism, and was already apparent before the
World War, when there was an increasing demand for more revolu-
tionary socialist action. This stage is determined by the slowing down
and relative decline of economic development, a downward tendency
in the workers' standard of living, and the aggravation of class antago-
nisms by monopoly capitalism and imperialism. The World War, a
product of imperialism, accelerated the decline of capitalism and conse-
quent impoverishment of the masses, meant a reversion to the earlier
tendency of increasing misery, and thrust the working class on to
more revolutionary action. Monopoly capitalism and imperialism sig-
nalize capitalist decline and proletarian revolution. The communist
revolution in Russia and the revolutionary struggles in Europe and
Asia mark the beginning of the epoch of the decisive struggle for
power, of the world revolution.

Thus far the American labor movement has also had three stages.
But one of its stages never appeared in Europe, it is only now in the
stage of capitalist decline and approaching revolutionary struggle, and
its whole development was profoundly influenced by national peculiari-
ties in economic development and class relations.

There was no upthrust of left wing proletarian elements in the
American Revolution, as in the English and the French (Levellers,
Babeuf). Nor was the American Revolution as drastic, for there was
no feudalism and the farmers were not an oppressed peasantry. Shays'
Rebellion was one of those agrarian-debtor revolts which run like a
red thread through American history. Thus, unlike Europe, the Amer-
ican bourgeois revolution did not lead to the appearance of a revolu-
tionary proletarian left wing.

While in Europe, in the period 1820-50, the workers emerged as a

* In the case of Russia the first and third stages practically coincided. The workers'
militant resistance to developing industrialism persisted into the epoch of imperialist
war and intensification of the class struggle, and coincided with a belated bourgeois
democratic revolution. The creative Marxist theory and practice of the Bolshevik party
decisively used the favorable combination of circumstances for the proletarian revolution.
Peculiarities of Russian development accelerated the revolutionary process, where the
process was elsewhere retarded by other peculiarities.

The American Revolution 553

measurably independent class, engaged in militant struggle, and forged
the theory and tactics of socialism, the American workers were not
only still inchoate as a class but were almost wholly under the in-
fluence of agrarian radicalism. Nowhere in Europe was there an ag-
gressive agrarian class in action (except later in Russia, and there in
a form different from the American). The agrarian class was insig-
nificant in Britain, subordinate to Junkertum in Germany, and satis-
fied with its small holdings in France. American agrarians, on the
contrary, constituted a class infinitely larger than the working class,
increasing twice as rapidly as the rest of the population, and markedly
independent, which dominated social protest and politics for two
generations. Agrarian radicalism, from its philosophical expression
in Jefferson to the practical politics of Jackson, was crudely but mili-
tantly anti-capitalist and impressed itself on labor's program and
ideology. But agrarian radicalism is anti-capitalist only in the most
petty-bourgeois sense, and this was particularly true of the American
variety. American agriculture, owing to the perpetual renewal of the
frontier and its new lands, acquired, along with its democratic prop-
ertied independence, an intensely speculative capitalist character. In
spite of its radicalism, American agriculture strengthened capitalism
economically and ideologically.

The early American labor movement (1825-35) was composed
mainly of craftsmen and mechanics, either independent or employed
in petty enterprises. Typical industrial workers, except in textiles, were
scarce; the American factory system was not only infinitely smaller
than in England but even smaller than in France and Germany, where
the output of manufactures considerably exceeded the output in the
United States. Thus, in 1840, while England produced 1,390,000 tons
of pig iron and France 350,000 tons, the United States produced only
290,000 tons, not much more than Germany's 170,000 tons.^ The in-
dividualism of the craftsmen and mechanics (many of whom, includ-
ing some of the union organizers, were alternately employers and
workers while employers were frequently members of the unions),
predisposed them to agrarian radicalism and ideology. Labor supported
the Jacksonian revolt, and independent labor parties had major agra-
rian radical demands along with specific labor and democratic demands,
while the philosophers of the movement were almost wholly agrarians.
These philosophers appealed to "the dispossessed" and urged an "equal
division of property." ^

Agrarianism was rooted in strong and persistent economic conditions
and class relations. Migration to the frontier now assumed larger pro-

554 The Decline of American Capitalism

portions, with the opening of the Ohio Valley, and intensified the
struggle for free land. It was not, however, simply a matter of the
more aggressive workers in revolt against conditions of life and labor
migrating to the frontier and thus depriving the working class of the
elements most capable of building a militant movement. This was
undoubtedly significant, but the majority of workers did not migrate,
and the migration overseas of workers did not prevent the growth of
a class labor movement in Europe. More significant was the perpetual
renewal of classes by successive sectional development, which prevented
coalescence of the workers as a conscious and independent class and
by the fluidity of classes within the older settled regions. Workers in
the older regions might begin to develop a class program and ideology;
this development was retarded, distorted, and upset by the emergence
of workers in the newly settled regions who were submerged by the
petty-bourgeois agrarian ideology and radicalism. In Europe there was
an economic expansion within the old circles of class relations; in the
United States new circles were formed by sectional expansion, which
recapitulated the development from lower to higher, from older to
newer, forms both in economy and class relations. Moreover, the
agrarian class was much larger and grew more rapidly than the work-
ers; it was a petty-bourgeois class waging war against developing
capitalism and consequently distorted the ideology and program of the
workers, as industrialism was still to conquer the American scene.
There was militant struggle and organization among the workers, but
whenever they went beyond ordinary shop and specific labor demands
and formulated general political demands the labor parties, for the
most part, accepted the slogans, program, and ideology of the agrarian
radicals. The instability of class relations and agrarian influences pre-
vented labor from separating itself from alien class influences, of de-
veloping an independent class movement such as developed in Europe
during this period. There was no comparable European stage, as there
was no comparable phenomenon of the successive sectional development
of an expanding frontier and its influence on class relations.

All these elements were bound up with the prevalence of democracy
and the absence of those petty-bourgeois revolutionary democratic
struggles which were so important in developing the militancy and
consciousness of European workers. Of this peculiarity, Marx said in
18^2: "With nations enjoying an older civilization, having developed
class distinctions, modern conditions of production, an intellectual
consciousness wherein all traditions of old have been dissolved through
the work of centuries . . . the republic means only the political repolu-

The American Revolution 555

tlonary form of bourgeois society, not its conservative form of existence,
as is the case in the United States of America, where, true enough, the
classes already exist, but have not yet acquired permanent character,
are in constant flux and reflux, constantly changing their elements and
yielding them up to one another; where the modern means of pro-
duction, instead of coinciding with a stagnant population, rather com-
pensate for the relative scarcity of heads and hands; and, finally, where
the feverishly youthful life of material production, which has to ap-
propriate a new world to itself, has so far left neither time nor oppor-
tunity to aboHsh the illusions of old."^ ...

Industrialism had made great progress by 1850-60, but the older
class relations and ideology persisted, although the newly revived
unions had partly shaken off alien class influences (employers were
now excluded from membership). The unions were still composed
mainly of craftsmen and mechanics. Progressive labor was caught in
the struggle for free land and over slave or free labor. Slavery was a
vital issue, but the workers' attitude was more a reflection of the in-
terests of Western agrarians than of their own class interests. Unionism
was practically destroyed by the crisis of 1857, and then the Civil War
intervened. During the war, labor had no independent program. It
was the passive ally of Western farmers and Northern capitalists.

The Civil War, with its objective purpose of smashing slavery, was
measurably a completion of the bourgeois revolution, with these im-
portant differences: it was a sectional struggle, there was no feudal
class to fight and to arouse comprehensive revolutionary ideas and
energy (which also, in general, explains the vulgar character of Ameri-
can liberalism), and the Northern victory signalized the conquest of
commercial capitalism by industrial capitalism. One of the war's de-
cisive phases was the capitalist struggle against the middle class (small
producers, merchant capitalists) — economically, in the increasing power
of the big manufacturers, bankers, and speculators, and politicaUy, in
their increasing control of government, the repression of the Copper-
heads, who constituted an essentially petty-bourgeois opposition, and
the subordination of the farmers to the capitalists. These circumstances
determined the historical character of Reconstruction — it was only
secondarily bourgeois democratic. The decisive measure of Reconstruc-
tion, political expropriation of the Southern states, was determined not
only by the struggle against the slave power, but by the need to prevent
the unity of Northern petty-bourgeois malcontents with the South,
which would have swept the Republican party out of power and broken
the industrial capitalist control of the national government. Despite

55^ The Decline of American Capitalism

their many revolutionary aspects (destruction of the slave system,
expropriation of a class, and dictatorship as a means of class struggle),
the Civil War and Reconstruction left no revolutionary imprint on
labor's mind.

Unionism revived under the impact of the war, increasing industrial-
ization, and falling real wages. By 1870 there was a strong labor
union movement, and during the next twenty-five years American
labor was in the militant stage which had appeared in Europe before
i860. The early post-war labor leaders (e.g., William Silvis) were
militant, even revolutionary, and they thought measurably in class
terms. They recognized neither skill nor race nor color in the organiza-
tion of labor — the Negro worker was accepted. The swiftly accelerated
pace of industrialization forced the workers into action, and it was
aggressive class action. Workers flocked into the Knights of Labor,
the unionism of which was an inclusive class unionism embracing
skilled and unskilled, all races and colors. The great strikes of 1877
assumed the character of mass insurrections, and were followed by
strikes of an equally militant character, culminating in the 8-hour
strikes of 1886 and ending with the great Pullman strike of 1894
(the "Debs Rebellion"). The militancy of American labor in this stage
is indisputable, comparable with the militancy of any labor movement
anywhere, and is of enormous theoretical, ideological, and practical
significance to the revolutionary movement of to-day.

But while the earlier militant stage in Europe forged the theory and
tactics of socialism and prepared the proletariat to act as an independent
class, no similar development appeared in the United States. (No group
of socially conscious intellectuals pioneered socialism, but this was itself
a product of other factors.) The unions developed before socialism
arose, and were not under socialist influence. There was a fundamental
contradiction in the Knights of Labor: while the workers were mili-
tant, almost revolutionary, the leadership and ideology were not. The
masses had to impose action upon the leaders, who did not believe in
strikes. Although the movement was definitely anti-capitalist, this
spirit was deflected into alien class politics. Free land was still an im-
portant (although vanishing) influence, and the workers were still
under the influence of agrarian radicalism, manifested in their support
of greenbackism and populism. In addition, the workers were now
influenced by another alien class, the middle class. In Europe this class
of small producers never led any considerable struggle against trustifica-
tion of industry, partly because its subordination to trustified industry
was relatively slow and incomplete, partly because it was afraid of the

The American Revolution 557

independent class action of labor. Lower middle class elements in revolt
were forced into the socialist movement, which they influenced but
could not wholly dominate. Industrialization and the growth of con-
centration and trustification, which in Europe were measurably sepa-
rated, developed in the United States almost inseparably and with the
speed of a locomotive. The growth of new industries increased the
middle class of small producers, particularly in the newly settled regions
of the frontier; simultaneously, concentration and trustification expro-
priated many small producers and inexorably transformed the middle
class of independent employers into a new middle class of managerial
and supervisory employees in corporate industry.

The old middle class led a struggle against trustified capitaUsm and
its control of the government, and combined with the agrarian radicals
in a movement for political power. (No such movement appeared in
Europe: the demand there was not to "bust the trusts" but to national-
ize them.) This petty-bourgeois movement submerged the workers in
spite of their attempts at independent political action and the appear-
ance of a socialist movement. Thus labor's anti-capitalist spirit was
again deflected into alien class politics, as well as into futile proposals
for producers' cooperation by the Knights of Labor (comparable to
the earlier Proudhonism in France). There was an extremely sug-
gestive contradiction between the workers' militant mass movement
and its political domination by agrarian and middle class radicals.

The Knights of Labor collapsed under the weight of its own contra-
dictions. By 1890 the organized workers broke away from middle class
and agrarian radical leadership. Unfortunately, however, the break was
bound up with the revolt of exclusive craft unionism against the
inclusive class unionism of the Knights of Labor and rejection of all
independent political opposition to capitalism. In separating from
politics (which reappeared as the labor leaders' individual scramble
for political jobs), the American Federation of Labor also separated
itself from the working class as a whole. The trade unions developed
as an organized aristocracy of the upper layers of skilled labor, con-
temptuous of the unorganized and the unskilled. This was the exclu-
sive, non-political unionism which prevailed in England, but which
there was changed by the "new unionism" of the .unskilled workers.
One result of this was a class political party of the workers, the Labor
Party. In the United States, however, although the peculiarities of class
relations were disappearing, exclusive unionism and the backward
character of the labor movement were perpetuated by hangovers of
an older ideology which had become institutionalized and bureaucrat-

558 The Decline of American Capitalism

ized, and by two other peculiar American developments. Accelerated
growth of industrial integration and trustification on a scale unparal-
leled in Europe made it extremely difficult to organize workers in the
plants of massed capital.* The difficulty was aggravated by an unprece-
dented influx of immigrants and their calculated concentration in basic
trustified industries; most of these workers were former peasants of
many stocks, whose racial antagonisms and language barriers were
deliberately exploited by management (<?. g., by the United States Steel
Corporation). That some immigrant workers waged many militant
strikes and organized progressive unions does not alter their general
role but dialectically complements it. Immigration, moreover, as in the
past, only more so, permitted workers of the older American stocks to
rise to superior jobs in trustified industries and practically to monopo-
lize the better-paid occupations in other industries. Unionism was split
three ways : it was isolated from the mass of unskilled and semi-skilled
workers, it was limited almost wholly to the sheltered trades, and it
comprised mainly American workers. The organized workers, largely
because they represented a small minority of the working class, were
able in the period 1 896-1914 to secure higher real wages, while the
wages of other workers were either stationary or moved downward.
Hence the unions were not interested in a general class struggle against
capitalism. On the contrary, unionism became a bulwark of capitalism,
led by bureaucrats who acted as "labor lieutenants of the capitalist class"
in the struggle against militant labor action.

The peculiarities of the American labor movement have been gen-
eralized into a theory by petty-bourgeois "labor experts" who consider
the peculiarities permanent instead of exceptional and temporary. They
consider the ideas of Samuel Gompers the "philosophy of stable trade
unionism," and saw progress in the German trade union bureaucracy's
increasing rejection of socialism.^ The experts forget, however, that
similar peculiarities of organization and policy in the English labor
movement broke down under pressure of the organization of the
unorganized mass of workers (and of the imperialist decay of cap-

* Where industrial integration and trustification on the accelerated American scale
have appeared in Europe, there the unions are weak or non-existent. The heavy iron
and steel industry in Germany and France are highly integrated and trustified, and
unionism is negligible (the companies also use the American methods of company
unions, employee stock ownership, welfare, spies, blacklists, and terrorism to prevent
organization). In England, on the contrary, the industry is not highly integrated and
trustified, what integration and trustification there are developed slowly, and the iron
and steel workers are relatively well organized. Since the war the problem of organiza-
tion in France is complicated by an influx of foreign labor.

The American Revolution 559

italism) : a movement embracing the majority of v^orkers cannot
wage a simple economic struggle, particularly where capitalism is
declining. Moreover, despite national peculiarities and backward-
ness, the American labor movement concretely manifested in all
stages the universal tendency to limit the employers' authority in
the shops and usurp some of their functions ("job control," stressed by
American labor) — an elementary form of labor's struggle for power
which assumes higher forms under pressure of favorable circumstances
and in which is implicit the final revolutionary struggle for power.

By 1900 the objective peculiarities of American class relations had
almost disappeared, although the older ideology persisted. There was
no longer any frontier, with its perpetual renewal of classes and its
influence on the instability of class relations.* Agrarian radicalism was
dead; the revolt of the farmers had been crushed in 1896, and their
class-political importance declined rapidly with the end of the sectional
expansion of agriculture and the growth of industry. These develop-
ments constituted the fundamental cause of the death of agrarian
radicalism, although a contributing cause was the temporary and rela-
tive prosperity of agriculture produced by rising prices from 1896 to
the World War. The sectional development of industry continued as
the newly settled agricultural regions were industrialized, and added
new elements to the middle class of small producers. Both the new and
the older small producers were measurably crushed by the concentra-
tion of industry and centraUzation of financial control. The struggle
of the "radical" middle class against the trusts persisted, affecting labor.
But by 1914 monopoly capitalism was triumphant.

Monopoly capitalism was the decisive factor in the new economic
set-up and class relations. The closing of the frontier contributed enor-
mously to the decUne of the agrarian class, but the closing was acceler-
ated by industrial expansion under the influence primarily of monop-
oly capitalism, which was the agency also in the final subordination
of agriculture to industry (and the development of the present agrarian
crisis). Monopoly capitalism, moreover, crushed petty-bourgeois radi-
calism by transforming the middle class — expropriating many of the
small producers, making the others dependent upon the larger corpo-

* With the closing of the frontier around 1890, and particularly from 1900 to the
World War, immigration was a major factor in whatever class fluidity still persisted.
Immigration still permitted Americans of the older stocks to rise in the social scale
who otherwise would not have risen, while social-economic differentiation among the
immigrants produced a petty bourgeoisie in each racial group. (This was true also
among the Negro people.)

560 The Decline of American Capitalism

rations, and strengthening those elements o£ the middle class which
are a direct product of monopoly capitalism (executives, experts, tech-
nicians, managerial and supervisory employees, small investors).
Finally, the unusually rapid and great development of monopoly capi-
talism in the United States prevented organization of the unorganized
masses and facilitated the institutionalization of exclusive unionism in
the sheltered trades, while the super-profits of monopoly, directly or
indirectly, made possible the higher wages which conservatized the
upper layers of skilled workers and separated them from the working
class.

The development of monopoly capitalism was enormously accelerated
during the World War and the post-war period; it now dominates
American economic life. Monopoly capitalism has completed the liqui-
dation of the former objective peculiarities of American class relations
begun by the closing of the frontier, and these class relations are now
essentially the same as in any other highly industrial country (Table I).

The upper, or capitaUst, bourgeoisie, 0.8% of the gainfully occupied,
received in 1928 nearly 22% of the national income and 77% of all

TABLE I

Class Divisions in the United States, iSyo-igig

PER-

PER-

PER-

1870

CENT

1920

CENT

1929

CENT

Working Class

5,860,000

46.9

27,015,000

64.9

33,000,000

68.5

Industrial Workers

2,600,000

20.8

15,370,000

37.0

15,500,000

32.1

Other Wage-Workers

3,000,000

24.0

7,930,000

19.0

12,500,000

26.0

All Wage-Workers

5,600,000

44.8

23,300,000

36.0

28,000,000

S8.i

Clerical

260,000

2.1

3,715,000

8.9

5,000,000

10.4

Farmers

4,550,000

36.4

8,500,000

20.5

7,500,000

15-5

Bourgeoisie

2,090,000

16.7

6,085,000

14.6

7,700,000

16.0

Lower

*

*

3,759,000

9.0

4,575,000

9-5

Intermediate

#

*

2,100,000

5-1

2,750,000

5.7

Upper

*

*

226,000

0.5

375,000

.8

* Not available.

Industrial workers includes wage-workers in manufactures, mining, railroads, water
transportation, municipal traction, electric power, construction, telephones and telegraphs;
other wage- workers includes servants, hired farm laborers, etc. (but not wage- workers
in government service). Clerical includes clerks in offices and stores, stenographers,
typists, office boys and messengers, and salespeople in stores. Farmers includes farm
laborers working on home farms. Lower bourgeoisie includes all non- wage- workers
and non-farmers with incomes below $3,000 yearly; intermediate bourgeoisie, incomes of
$3,000 to $10,000; upper bourgeoisie, incomes of $10,000 up.

Source: Computed from material in Bureau of the Census, Census of Population;
Bureau of Internal Revenue, Statistics of Income.

The American Revolution 561

corporate dividends, and owned 46% o£ the nation's capital resources
(an ownership concentrated in the decisive corporations, yielding con-
trol over industry). This class dominates economics and politics; it is
essentially a class o£ financial, not industrial, capitalists and rentiers, a
small, wholly predatory oligarchy.

Farmers in 1929 were only 15.5% o£ the gainfully occupied, where
they constituted 70% a century ago and over 36% sixty years ago.
Still more important, the farmers are no longer primarily an inde-
pendent propertied class. Mortgages rose from $7,875 million in 1920
to $9,468 million in 1928 (not including $3,500 million of other indebt-
edness); mortgage interest practically tripled between 1909 and 1927,
while the share in agricultural income of the owners of leased farms
increased 60%. The farmers' share of the national income declined
absolutely and relatively. Tenancy rose from 25.6% in 1880 to 38.1%
in 1920 and 42.4% in 1930. While the number of farms decreased from
6,448,343 in 1920 to 6,288,648 in 1930, farms of 500 acres up rose from
217,224 to 240,316; the largest increase was in farms of 1,000 acres up,
which rose from 67,405 to 80,620. Class divisions among the farmers
may be thus roughly classified: 500,000 capitalist farmers, owners of
fairly large farms, some of whom also rent land, and the "farmers"
whose sole business is leasing the farms they own; 2,000,000 middle
class farmers, owners and tenants of medium-sized farms, whose posi-
tion becomes continuously more precarious; 3,500,000 poor farmers, the
majority of small owners and tenants, pauperized American peasants
deprived of nearly all possibiUty of rising in the economic scale. (The
balance are farm laborers on home farms.) The farmers are no longer
an independent, homogeneous, powerful class; they are now incapable
of leading a great mass movement against capitalist abuses, of develop-
ing an agrarian radicalism which can dominate the ideology and
political program of the workers. With a permanent crisis and surplus
population in agriculture, it becomes possible, under the new economic
set-up and class relations, to rally the mass of the farmers to the revo-
lutionary struggle of the workers. The immediate program must in-
clude the repudiation of debts and expropriation of non-operators.
The final program must include the socialization of farming, its
socialist unity with industry. For American agriculture, with its many
large-scale farms, its increasing efficiency and labor displacement, can-
not prosper (except in exceptional cases and regions) on the basis of
small business production.

The lower and intermediate bourgeoisie, as a class in between the
capitalist bourgeoisie and the working class, is of extreme importance

562 The Decline of American Capitalism

in the social-economic structure of American capitalism; they made
the most striking gains of any class during the 1923-1929 prosperity.
The middle class in 1929 constituted 15.2% of the gainfully occupied
(the same as the farmers in numbers), received, in 1928, 30% of the
national income and 20% of corporate dividends, and owned 34% of
the nation's capital resources. But this is not the same middle class
whose decay Marx correctly predicted. The old middle class was essen-
tially a class of independent small producers, who are now compara-
tively unimportant, completely subordinate to the monopoHst com-
binations of capital. The new middle class is essentially a class of
technical, managerial, and supervisory employees in corporate industry
and investors (along with small producers, storekeepers, professionals
and other elements which constituted the old middle class) . The lower
bourgeoisie is mainly composed of the older middle-class elements, and
is deprived of economic or political independence. The intermediate
bourgeoisie, or upper middle class, is composed mainly of the newer
middle class elements; it is a direct product of monopoly capitalism,
upon which it is wholly dependent. This upper middle class in 1929
comprised 2,750,000 persons gainfully occupied, 5.7% of the total, re-
ceived, in 1928, 17% of the national income and 14% of corporate divi-
dends, and owned 20% of total capital resources. Middle class "radical"
revolt against trustified capitalism is now impossible on any consider-
able scale; the lower middle class has not the strength, the upper
middle class has not the desire. Any "revolt" of the middle class, inde-
pendent of the workers, can today proceed only within the orbit of
monopoly capitalism and fascism. But the lower bourgeoisie may be
won over to the cause of the workers. From 40% to 50% of its members
are hired employees. In 1927, only 353,000 were independent entre-
preneurs in manufactures, mining, and construction, and 1,499,000 in
retail trade.® The functional groups in the lower bourgeoisie — the tech-
nicians, teachers, professionals — can be approached on the basis of their
functional interests: they are increasingly unemployed, and only
socialism can release their craft function for social service.

The working class is now the largest and economically most impor-
tant class; in 1929 it constituted (wage and clerical) 68.5% of the gain-
fully occupied, but received, in 1928, only 41% of the national income
and 1.2% of corporate dividends, and owned only 4.7% of total capital
resources (concentrated in a small minority of better-paid skilled and
clerical workers). There is no longer the old fluidity of classes and
instability of class relations, whether due to the frontier, sectional
industrial development, or immigration; the workers have coalesced

J TOTAL GA/f\/fOUY
OCCOP/ED
/929

^j-^RMl^

J0%

Zo%

/6%

INDUSTRIAL
["IWA&E - WORKERS Pl

pj^URGEOiS|E.[-|

y>c<x>ficw

4.^^

4.^

;=»<

cS

CLERICAL WORKERS

Md

l»70

Rzo ms

XIX. AMERICAN CLASS DIVISIONS 1870-1929.

564 The Decline of American Capitalism

as a class, particularly the industrial proletariat which constitutes the
spearhead of the working class. Once it could be said: revolutionary
movements are not possible in the United States because there is no
class stratification, as in Europe; American class stratification is now
definite and final. The new class relations and balance o£ class power
permit the working class to separate itself ideologically from all other
classes in conformity with its objective separation. Any considerable
revolt of the workers against capitalism can no longer be deflected
into alien agrarian or middle class radical politics. The new class rela-
tions and the multiplying contradictions and antagonisms of monopoly
capitalism (and imperialism) prepare the objective conditions for the
revolutionary struggle of the working class against capitalism.

One of the "new" liberals nonchalantly says: "Already the middle
class in America, not including the farmers, outnumbers the working
class. . . . Adding farmers to the middle class, the majority in sheer
numbers is large. . . . America still has a proletariat, but every auto-
matic process, every battery of photoelectric cells, diminishes its num-
bers and its political importance." ^^ This is sheer fantasy. In 1929, the
wage- workers alone, excluding clerical workers, constituted 58.1% of
the gainfully occupied — a clear majority. In spite of its numerical in-
crease, the bourgeoisie, which includes the middle class, stands, if any-
thing, in a slightly smaller ratio than in 1870. It is another fantasy to
assume that technology will proceed smoothly, uninterruptedly toward
the abolition of the proletariat.* The proletariat, the industrial workers,
is a majority of all wage-workers, and in a larger proportion than
it was in i8yo. This class is the carrier of socialism. It is the heart
of the working class, and its might flows from control of industry —
a control more mighty than in 1870, because industry is now more
pervasive and more complex. A revolutionary class, moreover, does not
come to power because of numerical superiority; it comes to power
because it represents new forms of production, the forces of social
progress. This is the answer to fascism. It is the answer to the waver-
ing of petty-bourgeois elements, for these elements can be won over
or neutralized if the proletariat manifests its revolutionary might, if it

* This is simply an argument against communism and for a middle class "revolution,"
whatever that may be, and it ignores the fact that the middle class is capable of "in-
dependent" action only within the orbit of capitalist relations. A variant of the argument
is that the workers are increasingly an unemployed class, and thus cannot make a
revolution. But the conditions which thrust the workers into disemployment also thrust
large groups of the middle class into the same condition. Can the unemployed of the
middle class make a revolution, if any.?

The American Revolution 565

shows itself capable of carrying on the struggle for power to a suc-
cessful conclusion.

Yet there was no revolutionary upsurge of the working class in the
period 1923-29, despite the new class relations; except for the Com-
munist party, all labor organizations became more and more conserva-
tive under the influence of the "new capitalism." The explanation is
simple: the institutionalized ideology of older class relations was still
dominant and was strengthened by an unusual upswing of prosperity,
due to an unusual combination of circumstances which had appeared
only once before in American history, in the seven years after the
Civil War. Prosperity was the product mainly of an exceptional expan-
sion of old and new industries and the increasing export of capital and
imperiahsm, in which the imperialist decline of Europe was of crucial
importance. But these same forces produced an aggravated depression
and introduced the period of decline of American capitalism.

Monopoly capitalism has two contradictory aspects. It is capitalism
at its highest, based on the technical integration and corporate con-
centration of industry — a socialization of production which constitutes
the objective basis of socialism. But monopoly capitalism is also capi-
talism in decay, rent asunder by aggravated contradictions. Capitalist
"organization" turns into its opposite and produces more disorganiza-
tion. Finance capital, speculative and adventurous, intensifies the basic
instability of capitalist production. Monopoly, however incomplete,
relatively restricts the technological and social development of produc-
tion. This is aggravated by decline. Capitalism becomes more of a fetter
upon the productive forces, begins to decay.

The American ruling class will try to "solve" the mounting contra-
dictions involved in restricted home markets and economic decUne by
an intensification of imperiaHsm to secure foreign markets for surplus
goods and surplus capital. But while that may solve some problems it
produces other problems and ultimately makes worse the economic
decline, as imperialism is the extension and aggravation on a world
scale of all the inner contradictions and antagonisms of capitaHst pro-
duction. Imperialist powers in Europe and Asia also seek foreign mar-
kets to absorb surplus goods and surplus capital. Foreign markets be-
come relatively restricted; colonial and other economically backward
countries tend to develop their own industries and capital resources,
and are infected by the general capitalist decay as their "normal" eco-
nomic development is hampered by monopoly capitalism and im-
periaHsm (economic tribute, political pressure). Intensified competition
among the imperialist powers sharpens the danger of war, including

566 The Decline of American Capitalism

war against the Soviet Union, and accelerates the general economic
decline, although this decline may be interrupted by temporary up-
swings of prosperity in different countries and at different times. These
developments mean more exploitation of the workers, driving them
to revolt, aided ideologically by the example of the working class
building socialism in the Soviet Union. Imperialism converts the world
into a revolutionary arena, where the struggle ranges from colonial
revolts to the direct proletarian struggle for the seizure of power. War
is transformed into civil war against capitalism and for socialism.

Thus the very forces which produced the "resplendent" prosperity
of 1923-29 are now creating its negation, the decay and decline of cap-
italism, creating the negation of labor conservatism.

The basic cause of union conservatism in the years of 1923-29 was
not the general rise of real wages — the rise was very small among the
majority of workers and was partly offset by increasing technological
unemployment; the basic cause was an unusually high rise of real
wages among the organized skilled workers, with some few exceptions
such as the miners, large gains in some cases (e.g., building trades).
The wages of skilled workers, moreover, kept on rising after 1923,
although real wages were stationary or decreased among the major-
ity of unorganized workers. The unions were satisfied; they con-
sidered prosperity and rising wages everlasting. But union loyalty and
membership declined — the American Federation of Labor lost 2,000,000
members, and "welfare" capitalism and company unions developed
great strength. While the labor union bureaucracy urged "class peace"
the capitalists waged class war upon labor in the form of welfare
capitalism and company unions, which are an expression of the class
struggle. Union wages rose but the unions were threatened by techno-
logical changes and by the base of unionism becoming still more nar-
rowly one of privileged skilled workers. There were many predictions
that unionism might wholly disappear. Many of the union bureaucrats
felt that new tactics were necessary, but they characteristically evaded
the issue by proposing to "sell" unionism to the employers on a business
basis, to foster labor-management cooperation, to develop a vulgar
philosophy of "trade union" capitalism, to organize labor banks which
the Grand Chief of the Brotherhood of Locomotive Engineers con-
sidered the "American answer to Marx and Lenin." The banks are
now a mass of ruins.

This decline of unionism was not merely the result of prosperity
but of the new economic set-up. Craft unionism, adapted to small-scale
competitive capitalism, cannot survive in its old form the coming of

The American Revolution 567

monopoly capitalism, of the concentration of industry in larger aggre-
gations of capital. This was admitted by John R. Commons, the father
of the theory that the older American unionism and its limited objec-
tives are eternal and the basis of the labor movement:

"The period of banker capitalism is the modern variation of Karl
Marx' theory of the ultimate concentration of all industry. . . . Labor
movements now face a new problem and take on a puzzling new
formation. ... In the face of this situation of the twentieth century
all labor movements except in Russia seem to be helpless and their
leaders despondent. ... It may be that labor movements will be
relegated to the history which now shrouds the guilds of the Middle
Ages or that craft unionism will turn to industrial unionism or com-
munism." ^^

The "banker capitalism" is monopoly capitalism, against which craft
unionism is helpless. But the events of 1923-29 did not mean the end
of unionism. Now, under the conditions of economic decline, intensified
class struggle, and an influx of new members, the unions are becoming
stronger, more militant, moving toward industrial unionism, respond-
ing to new conditions and new tasks. One expression of this was the
great series of strikes in 1934 (in which a new tactic was evolved of
cooperation with organizations of the unemployed and the farmers),
including the magnificent general strike in San Francisco.

Left wings within the old unions will urge more militant class action
and the broadening of the basis of unionism. The unorganized work-
ers, tormented by economic decline, will move toward action and the
organization of industrial unions. Unions will become organs of
struggle, and can survive and develop only as organs of struggle. This
awakening to organization and action, limiting the possibility of capi-
talist concessions to comparatively small groups of privileged workers,
will force the workers to independent poHtical action, which, under
American conditions, may at first mean a labor party. We are not,
however, in England, in the year 1900, but in a revolutionary epoch
of larger perspectives and struggle. A labor party, despite its signifi-
cance, presents infinitely more problems than it solves. Organization
of a labor party means simply that the masses are in motion, that they
accept independent political action, and are prepared for larger objec-
tives. These larger objectives must inevitably become a revolutionary
struggle for the overthrow of capitalism, which laborism has proven
itself incapable of waging. That is the task of the communist party
and its Marxist program, disciplined organization, and awareness of
purposes and means, unifying all phases of the proletarian struggle.

568 The Decline of American Capitalism

As the objective conditions are favorable for the development of
an American revolutionary labor movement and communism, the
ideological backwardness of the workers must disappear, although it
is still an important problem of approach.

But where ideological backwardness formerly represented the over-
whelming weight of objective economic conditions and class relations,
backwardness now is simply a weakening cultural lag. Already unem-
ployment, mass starvation, and capitalist repression are creating deep
scars in the workers' consciousness, accompanied by a process of sub-
merged ideological transformation which is slowly but surely becom-
ing articulate. Capitalist relations are being undermined by the crisis
of the system; the prospect is one of successively more violent cyclical
collapses, of chronic hard times and short-lived spotty prosperity, of
imperialist war and growing world revolutionary struggles. The ideo-
logical transformation now being wrought will be intensified by
coming events and struggles. Communist agitation and action are
conscious, purposive factors in the process of ideological transforma-
tion, stimulating, clarifying, organizing, the combination of mass
struggle and the "patient explanation" of which Lenin spoke (six
months before the conquest of power).

The American revolutionary movement, moreover, is not a clean
slate. Despite its agrarian and petty-bourgeois reformist ideology and
illusions, the American working class repeatedly demonstrated its
capacity for militant struggle in the years 1877-94 — the railroad strikes
of 1877, which spread to other industries and became almost a national
general strike; the mighty 8-hour demonstrations ten years later; the
great Pullman strike of 1894. The ensuing twenty years were marked
by another series of great strikes among the coal and copper miners,
the textile workers and other groups of the working class. In these
actions the workers manifested an incomparable spirit of solidarity
and courage, their militancy often assuming the form of a struggle
verging on civil war. There is nothing finer in the strike annals of
European labor.

Most of these strikes were waged within the circumscribed limits
of an ideology which rejected the larger class character and class objec-
tives of the labor movement. After 1900, however, changing class rela-
tions and relative economic decline produced the beginnings of ideolog-
ical change in American labor. There was increasing discontent
among the unions of skilled workers, demands for amalgamation,
more aggressive struggle and independent political action. Socialism
was becoming a force; although the Socialist party represented mainly

The American Revolution 569

petty-bourgeois reformism and the unionism of the aristocracy of labor,
it had significant proletarian elements which subsequently became the
basis of the American Communist party. The Socialist Labor party
and the Industrial Workers of the World built up traditions of real
value to the contemporary revolutionary movement — the one in its
struggle against opportunism, both socialist and trades union, its
emphasis on the importance of a disciplined party of uncompromising
revolutionists, and its Marxist conception of industrial unionism; the
other in the great strikes it waged and its stirring to action of the
unorganized unskilled workers. The labor movement was approaching
the European model, both in its general character and in the struggle
between reformist and revolutionary tendencies. American labor was
not exceptional, the tempo of its progress was simply slower.

This progress was interrupted by the World War, when Gom-
persism became still more reactionary. But the SociaUst party, under
mighty pressure of the left wing, adopted an anti-war program, which
was, however, practically sabotaged by the party leaders. Out of the
party's left wing emerged the Communist party. Immediately after
the war, in 1919, accumulated working class resentment flared up
in a series of great strikes — the steel strike, in which unskilled workers
tvaged one of the greatest labor struggles in American history, and the
Seattle and Winnipeg general strikes, in which the strike committees,
particularly in Seattle, usurped many of the functions of government
in the manner of Soviets. Labor and the unions were being radicalized,
the American Federation of Labor accepted the Plumb Plan for a sort
of workers' control of the railroads, and the capitaUst press spoke fear-
fully of revolution. The government let loose an unprecedented cam-
paign of terrorism against the workers, and particularly against the
communists. There was another upsurge of militant strikes in 1921-22,
when the workers' stubborn resistance to wage cuts was largely re-
sponsible for the rise in real wages by preventing a fall in money
wages as great as the fall in prices. The process of radicalization
culminated in 1924 in the acceptance of independent political action by
the American Federation of Labor and the railroad brotherhoods. But
the acceptance of independent political action was an empty gesture,
for the process of radicalization had temporarily stopped. Under the
impact of prosperity the unions became more and more conservative.

A repetition of the 1923-29 experience, when radicalization was sub-
merged by prosperity, is now impossible, as the decline of capitalism
prevents the revival of prosperity on any considerable scale. The forces
which produced that submergence, it is now clear, multiplied economic

570 The Decline of American Capitalism

and class contradictions, weakened the conservative unions, and pre-
pared the appearance of an American revolutionary movement. Mili-
tant struggles will break loose again; but unHke the struggles o£ former
years they will, under the impact o£ economic decline, favorable class
relations, and communist awareness of purposes and means, assume
larger dimensions and objectives, press onward to the struggle for
the conquest of political power.

Communism thus builds upon the dialectic movement of economic
and class forces in this country, the heritage of the militant experience
and traditions of the American working class, and the determination to
utilize realistically and creatively every favorable element in the Amer-
ican scene for proletarian revolution, which alone can overthrow cap-
italism and prepare the coming of socialism.

Are the communists isolated? Are they rejected by the American
working class? But communism represents the larger historical in-
terests of the working class (as well as its immediate interests) and
the only alternative to social decUne and decay. It is a minority, but
it is also the advance guard of a class, issuing a challenge, creating
an ideology, rallying the iron battalions for the coming struggle. A
century ago the American Abolitionists were also isolated, spurned
and repressed by the very class whose interests they served, yet that
class was eventually compelled to wage a civil war to settle the
issue of slavery. The working class will increasingly accept the pro-
gram of its conscious representatives, the communists, the Abolitionists
of to-day who are waging war to abolish capitalism and wage-slavery.
Ideological struggle and preparation are an indispensable preliminary
of revolution.

There is no conflict, but harmony, between the tasks imposed upon
labor by American capitalist decline and the aspirations of communism.
Nor is there any conflict between communism and the special prob-
lems created by the hangovers of peculiarities in the development of
the American economy, class relations, and labor movement. That it is
necessary to consider such problems was urged by Marx and Lenin.
In 1920, when the Communist International emerged as a definite
organization, Lenin stressed that the communist approach means "to
investigate, study, ascertain, grasp the nationally peculiar, nationally
specific features in the concrete attempts of every country to solve the
aspects of a single international problem." ^^ Thus communism does
not exclude consideration of national differences, but it considers them
to facilitate and not to evade the revolutionary struggle.

The moderate reformist socialists, echoing (as usual) the vulgar

The American Revolution 571

petty-bourgeois radicals, argue that communism is alien to the Ameri-
can scene, a sort of unnaturaUzed stranger in our midst. But that is
precisely what was said o£ the Socialist party when it still clung to
some of its revolutionary pretensions. It considers peculiar national
problems simply as another argument for democratic reform and oppor-
tunism, for the renunciation of revolutionary struggle and the over-
throw of capitalism. That is everywhere characteristic of contemporary
socialism, which represents the vestigial remains of the pre-war oppor-
tunist labor movement. Marxism was met by peculiar national prob-
lems in Russia; the Menshevik sociaUsts made of them an argument
against proletarian revolution, the Bolsheviks utiHzed them to facilitate
the revolution. Mensheviks opposed the Bolshevik revolution on the
plea that capitalism was insufficiently developed for proletarian revo-
lution. But capitalism was sufficiently developed in Germany, yet the
socialists opposed proletarian revolution on the plea that democracy
was insufficiently developed to realize socialism. Both evasions are com-
bined in the policy of the Spanish socialists — they plead that both
capitalism and democracy are insufficiently developed in Spain to make
socialism the immediate issue. Thus the socialists defend capitalism.
Meanwhile the communists in the Soviet Union build socialism. . . .

More worthy of analysis are the arguments on the need of "Ameri-
canizing" communism which are being discussed among intellectuals
moving toward communism. (This leftward movement of the
intellectuals is an enormously significant social symptom, unprece-
dented in American history, as one of the indications of coming
revolution is desertion of the ruling class by intellectuals who accept
the cause of an oppressed class struggling for power.)

One group of intellectuals "Americanize" by stressing technology
and the engineers — either as an argument against communism or as
an argument for some not clearly defined change in the communist
approach. Technology and engineers, of course, are not unknown in
Europe, and their significance is not exclusively American. The high
development of technology offers more aids than obstacles to revolu-
tion. Engineers as a class are not capable of becoming revolutionary,
as they are bound up with all the exploiting relations of capitalist pro-
duction. Marxism envisages the significance of technology — its acceler-
ated development complicates all the contradictions and antagonisms
of capitalism and it is one of the factors in revolutionary tactics.
To offer, however, the "technological" conception of revolution as a
substitute for communism and its reliance on an inclusive social theory
and on the proletariat can lead only to adventurism or fascism.

572 The Decline of American Capitalism

Another group stresses the "American spirit." It has discovered a
"vital mysticism" in Karl Marx of which no one was previously
aware. "One must needs defend the Soviet Union. . . . But we must
forge our part of the world future in the form of our own genius."
Yes, but . . . ? What does it mean in terms of concrete revolutionary
problems and definite communist tasks? It means too much or too
little. If it means that communism must draw its inspiration only or
even mainly from "our own genius," it is too much, as that is the
conception of petty-bourgeois philistines. If it means that communism
must necessarily be colored by its American environment, it is too
little, for the question is, "In what way?" The general, abstract formu-
lation of the problem invites non-communist interpretation.

Still another group stresses what may be called "understandability."
It insists that the "supremely important job" now is to "Americanize"
communism; it is slightly more concrete than other "Americanizers"
but offers only substitutions — the substitution of "equity" for commu-
nism, of "unearned increment" for surplus value, and "interactions of
social groups" for class struggle. These substitutions might be justified
on one or both of two counts: they are more easily understood by the
American masses and they are more realistic or scientific than the
Marxist terminology. But the substitutions do not possess more under-
standability— communism is acquiring definite meaning among the
masses (it is identified with the Soviet Union's achievements; with what
is "equity" identified?), "unearned increment" would have to be
explained as much as surplus value, and class struggle and class war
are as elemental as the masses whom "interactions of social groups"
would completely baffle. Nor are the substitutions more realistic or
scientific — "equity" is all things to all men and is claimed aUke by
religion, capitalism, and fascism, the bourgeois economists are not
agreed upon the meaning of "unearned increment," which, moreover,
justifies part of the capitalist plunder, and "interactions of social groups"
(a typical product of evasive and apologetic American sociology) is as
indefinite as class struggle is definite. These abstract approaches to
the problem not only vulgarize the issues involved but may lead
to liquidation of communism. In one of its aspects "Americanization"
becomes the product of practical revolutionary development, of class
and party action and experience. In another and correlative aspect
"Americanization" means the necessity of concrete Marxist analysis
of the special problems created by peculiarities in the development of
the American economy, class relations, and labor movement — and this
is necessary not only in the United States, but in all countries.

w

The American Revolution 573

The fundamental "special" problem which confronts American com-
munism is the necessity of combining two stages in the development of
the labor movement — the stage of elementary class action and the stage
of preparatory revolutionary action. Despite their considerable mili-
tant traditions, the American workers have still to take the first real
steps toward larger independent class action, often the most primitive
forms of such action. The working class cannot skip stages, but neither
can stages be rigidly separated. Communism cannot isolate itself from
the elementary forms of developing class action, but neither can this
action be isolated from the necessity of more conscious revolutionary
action and organization. For the epoch is revolutionary. Thus the
struggle to organize unions among the unorganized workers may at
any moment become a struggle to throw them into larger mass actions,
to organize them into Soviets. This "special" American problem is an
aspect of the necessity of linking up the final objectives of communism
with the most elementary needs and struggles of the workers, with
their every immediate problem and action, which become the starting
point of communist preparation for the final direct struggle for power
and the dictatorship of the proletariat.

Among the more specific "special" problems are:

Necessity of an intensive and variegated ideological struggle to over-
come the lingering cultural lag in the consciousness of the American
workers, linked up, of course, with the practical struggle.

Limited minority character of American unions as essentially organs
of the aristocracy of labor, the unusual petty-bourgeois spirit and cor-
ruption of their bureaucracy, the necessity and problems of revolu-
tionizing these unions and of combining this activity with the struggle
to organize unions among the unorganized workers.

Unifying the struggle of the Negro in its racial and class aspects
(the Negro and organization of the unorganized workers, unity of the
struggle of Negro farm tenants with that of white tenants).

Problems involved, class and geographical, in mobiUzing the farmers
in the struggle against capitalism; differences in the American agrarian
problem from that in economically backward countries.

Unusually high development of American technology in relation to
industrial unionism and prospective revolutionary struggles.

Significance of the more intensive struggle required to accomplish
the revolution in the United States offset by the greater ease of organ-
izing socialism after the conquest of power (many problems and diffi-
culties of the Russian transition to socialism would not arise in this
country because of its higher economic development).

574 The Decline of American Capitalism

Problems created by the strength and significance of the new middle
class in the American social set-up, particularly in relation to fascism.

Significance of the belated development of radical social conscious-
ness among the American intellectuals, their relation to various class
groupings, particularly the new middle class, clarification of their
function in the movement, communist struggle among them.

Creation of an American Marxist literature, the inadequacy of which
more than anything else creates the illusion that communism is "alien"
to the American scene.

Not all of these problems are peculiarly American, for most of them,
in some form or other, exist in other countries. Concrete Marxist
analysis of the problems is necessary not merely to "Americanize"
communism but creatively and dynamically to utilize the peculiarities
of our economic and class development to hasten the coming of com-
munist struggle and revolution. These peculiarities have their positive,
as well as negative, aspects. The necessity of considering the more
elementary forms of class action in setting the masses in motion pro-
vides communism with the opportunity of rallying the unorganized
workers unopposed by an intrenched bureaucracy. The Negro offers a
twofold approach — class and racial. The absence of a considerable
American Marxist literature and tradition means that communism does
not have to overcome any generally accepted or influential reformist
socialist distortion of Marxism. Dialectically investigated and grasped,
the special problems created by national differences offer means of
accelerating communist struggle. Communism, which is Marxism
and Leninism, is both a science of social development and a philosophy
of revolution; it approaches the problems and tasks involved in the
overthrow of capitalism and the building of socialism with a creative
awareness of purposes and means.

For communism is a conscious and determined struggle by a whole
class to realize objectives clearly perceived and understood. The objec-
tives are not the artificial creation of the communist; they arise out of
the development of capitalism itself, including its American form. The
American revolution is necessary; development of social-economic
forces provides the means for making the necessity a reality. It is the
fulfillment of history, of its progressive struggles and aspirations.
American civilization depends upon communist revolution, and, given
the dominant economic position of the United States, the victory of the
American working class will make a mighty contribution to the build-
ing of world socialism and a new world civilization.

Notes and Sources

Notes

PART ONE

Introductory
* Willard L. Thorp and Wesley C. Mitchell, Business Annals (1927), p. 65.

CHAPTER I

*Ncw York Times, June 29, 1933; June 25, 1933; June 28, 1933; June 8, 1933;
July 8, 1933; July 29, 1933; editorial, "The Spirit of '33," New York World-Telegram,
July 3, 1933; Oswald Garrison Villard, "The Roosevelt Revolution," Nation, July 26,
1933» P« 91; New York Times, June 25, 1933; May 23, 1933; Rexford Guy Tug-
well, "The Ideas Behind the New Deal," New York Times Magazine, July 16, 1933,
p. 2; Leonard Rogers, "Industry's New Deal," New York World-Telegram, June 12,

1933.

'David A. Wells, Recent Economic Changes (1889), pp. v, 381, 466.

' W. Jett Lauck, The New Industrial Revolution and Wages (1929), pp. 2, 84.

*Garet Garett, The American Omen (1928), p. 84.

" Melvin A. Traylor, New York Times, October 10, 1927; E. A. Filene, Times, March
8, 1928; Haley Fiske, Nation's Business, May 20, 1927; the Mitchell, Rand and Mellon
quotations are from New Market News, an advertising promotion publication issued by
the magazine True Story (1928).

" Benjamin A. Javits and Charles W. Wood, Make Everybody Rich — Industry's New
Goal (1929), pp. 90, 280.

' Nation's Business, June 5, 1924, pp. 7-8.

'New York Journal of Commerce, November 13, 1925.

'Lewis Corey, "The New Capitalism" in American Labor Dynamics (1928), p. 62.

*°F. P. Stockbridge, "The New Capitalism," Saturday Evening Post, November 6,
1926, p. 226.

"Thomas Nixon Carver, The Present Economic Revolution in the United States
(1924), pp. 9, 261-2.

" Carver, Economic Revolution, pp. 91, 263.

"Report of the Committee on Recent Economic Changes, of the President's Con-
ference on Unemployment, Herbert Hoover, Chairman, National Bureau of Economic
Research, Recent Economic Changes in the United States (1929), 2 vols., v. I, pp. xxi-
xxii.

"Robert M. Davis, "Long-Time Guarantees of Prosperity," Journal of the American
Statistical Association, June, 1928, pp. 138-43-

"Rexford Guy Tugwell, Industry's Coming of Age (1927). PP- 93. 206.

"New York Times, October 22 and December 3, 1929.

577

57^ Notes

" Quoted by W. J. Eiteman, "Two Decades of Depression," New Republic. July 15,
193 1, p. 225.

^* Stuart Chase, Prosperity: Fact or Myth (1930), p. 184.

"Stuart Chase, Out of the Depression — and After (1932), p. 11.

'"Charles A. and Mary R. Beard, Rise of American Civilization, 2 vols. (1928), v.
II, p. 800.

CHAPTER II

* Department of Commerce, Statistical Abstract, 1928, p. 447.
'Wesley C. Mitchell, History of the Greenbacl^s (1905), p. 389.

'Victor S. Clark, History of Manufactures in the United States, 2 vols. (1928), v.

n, p. 37.

*Alvin H. Hansen, "Factors Affecting the Trend of Real Wages," American Eco-
nomic Review, March, 1925, p. 32.

"^Mitchell, Greenbacks, p. 400; John R. Arnold, "The Trend of Consumption in the
United States," Annalist, October 5, 1928, p. 511.

'Hansen, "Real Wages," American Economic Review, March, 1925, p. 32.

' Willard L. Thorp and Wesley C. Mitchell, Business Annals (1926), pp. 130-37.

* Department of Commerce, Statistical Abstract of the United States, 1931, p. 813.
"Willford I. King, Wealth and Income of the People of the United States (191 5),

p. 44.

^" David A. Wells, Recent Economic Changes (1889), pp. 28-29.

" United States, Bureau of Labor Statistics, History of Wages in the United States
(1929), p. 521.

"Arnold, "Trend of Consumption," Annalist, October 5, 1928, p. 511.

"Department of Agriculture, Yearbook of Agriculture, 1932, p. 492.

"Lewis Corey, The House of Morgan (1930), pp. 247-48, 273.

"Scott Nearing and Joseph Freeman, Dollar Diplomacy (1925), p. 12.

^Commercial and Financial Chronicle, March 2, 1901, p. 416.

" New York Times, December 29, 1907.

"Frederick C. Mills, Economic Tendencies in the United States (1932), p. 2.

"Mills, Economic Tendencies, p. 35.

'"Mills, Economic Tendencies, pp. 139, 143.

"Mills, Economic Tendencies, p. 159.

"Paul H. Douglas, Real Wages in the United States, i8go-ig26 (1930), pp. 205,
391.

"National Industrial Conference Board, The Agricultural Problem in the United
States (1928), pp. 38, 48.

"King, Wealth and Income, p. 231.

'"Arnold, "Trend of Consumption," Annalist, October 5, 1928, p. 511.

'^^Mills, Economic Tendencies, p. 21.

^ Mills, Economic Tendencies, p. 21.

'*F. W. Jones, "Real Wages in Recent Years," American Economic Review, June,
1917, p. 330.

"Henry Pratt Fairchild, "The Standard of Living — ^Up or Down?" American Eco-
nomic Review, March, 191 6, p. 9.

'"Rexford Guy Tugwell, "The Ideas Behind the New Deal," New York Timet
Magazine, July 16, 1933, p. 2.

"Mills, Economic Tendencies, p. 188.

Notes 579

** Bureau of Internal Revenue, Statistics of Income, 191 6, p. 16.

"Douglas, Real Wages, pp. 205, 391-93.

"Arnold, "Trend of Consumption," Annalist, p. 511.

CHAPTER III

^M. J. Bonn, The Crisis of Capitalism in America (1932), pp. 187-88.
"Frederick L. Schuman, International Politics (1933), p. 828.
'Department of Commerce, Statistical Abstract, 1931, p. 637.

* Alexander D. Noyes, Forty Years of American Finance (1909), p. 52.
'^Statistical Abstract, 1931, pp. 413, 420.

^Statistical Abstract, 1931, pp. 3, 49.

'New York Herald Tribune, November 12, 1933; New York World-Telegram.
December 28, 1933; New York Times, January 4, 1934; January 5, 1934. Charles Merz,
"A Record Fiscal Year Ends — and Another Begins" New York Times, July i, 1934.

*New York Times, November 10, 1933; November 12, 1933.

* "The Super-Highway Project in Hitler's Recovery Program," Literary Digest,
October 7, 1933, p. 41.

PART TWO
Introductory

^New York Times, July 25, 1933.

* Editorial, "Public Works to the Rescue," New Republic, September 6, 1933, p. 87.

CHAPTER IV

* Department of Commerce, Statistical Abstract of the United States, 1931, p. 488.
"Department of Commerce, Commerce Yearbooks, 1929, 2 vols. (1930), v. I, p. 41.
'Frederick C. Mills, Economic Tendencies in the United States (1930), p. 191;

National Bureau of Economic Research, Recent Economic Changes (1929), v. I, p. 220.

* National Bureau of Economic Research, Recent Economic Changes, v. I, pp. 258-59.
^Statistical Abstract, 1931, p. 403.

"John R. Arnold, "The Trend of Consumption in the United States," Annalist,
September 28, 1928, p. 473.
'' Mills, Economic Tendencies, p. 280.

* Mills, Economic Tendencies, p. 246.

^ Commerce Yearbook,, 1929, v. I, p. 437.

^"Department of Commerce, Census of Manufactures, 1929, v. I, p. 112; Hugh
Quigley, "Electric Power," Encyclopedia of the Social Sciences, v. V (1931), p. 459.

" Commerce Yearbook, 1929, v. I, p. 236.

^^ Commerce Yearbook, 1929, v. I, p. 410.

" Commerce Yearbook, 1931, v. I, p. 431.

"Bureau of Foreign and Domestic Commerce, The Balance of Payments of the
United Stated in ig2g (1930), p. 2; Great Britain, Royal Commission on Unemploy-
ment Insurance, Final Report (1932), p. 95.

"Bureau of Foreign and Domestic Commerce, Balance of Payments, p. 4.

"Bureau of Internal Revenue, Statistics of Income, 1923, p. 14; 1929, p. 267.

" National Bureau of Economic Research, Recent Economic Changes, v. II, p. 641.

580 Notes

^^ Statistics of Income, 1923, p. 118; 1929, pp. 328-29.

'^Statistical Abstract, 1932, p. 175.

^'^ Statistics of Income, 1923, p. 13; 1929, p. 330.

^^ Statistics of Income, 1923, p. 118; 1929, p. 328.

*^ Statistics of Income, 1923-29.

^Statistics of Income, 1923-29; Mills, Economic Tendencies, p. 504.

^* Commerce Yearbook, 1929, v. I, pp. 318-19.

^^ Statistics of Income, 1923, p. 63 and 1929, p. 333; W. H. Rastall, "The Machinery
Industry at Grips with the Business Cycle," Mechanical Engineering, January, 1933,
p. 11; lAWXs, Economic Tendencies, p. 438.

CHAPTER V

* W. Jett Lauck, The NeuA Industrial Revolution and Wages (1929), p. 84; Victor S.
Clark, History of Manufactures in the United States (1928), v. II, p. 281; National
Bureau of Economic Research, Recent Economic Changes (1929), v. I, p. xiv; Bertram
Austin and W. F. Lloyd, The Secret of High Wages (1927), p. 120; M. J. Bonn, The
Crisis of Capitalism in America (1932), p. 74.

* Lauck, New Industrial Revolution, p. 78.

'New York Times, May 2, 1921; May 10, 1921; January 3, 1922; National Indus-
trial Conference Board, Wages in the United States, igi4-igjo (1931), p. 47; National
Bureau of Economic Research, Recent Economic Changes, v. II, p. 435.

* Labor Research Association, luibor Fact Boo\ (1931), p. 138.
"New York Times, March 22, 1919.

'New York Times, January 4, 1921; February 11, 1921; March 8, 1921; March 24,
1921; November 24, 1921; December 6, 1921.

'Samuel M. Vauclain, Optimism (1924), pp. 6, 35, 37, 54, 81, 117, 213, 266, 301.

"Frederick C. Mills, Economic Tendencies in the United States (1932), p. 393.

® Department of Commerce, Biennial Census of Manufactures, 1923, p. 14.

"Mills, Economic Tendencies, p. 290.

*^ Computed from material in the Census of Manufactures for the respective years.

" Mills, Economic Tendencies, p. 477; Department of Labor, Monthly Labor Review,
November, 1931, p. 186.

"Paul H. Douglas, Red Wages in the United States (1929) pp. 177-82; Whitney
Coombs, The Wages of Unskilled Labor in Manufacturing Industries (1928), p. 121.

"Labor Research Association, Labor Fact Book, P- 83; United States, Department of
Commerce, Census of Distribution, 1929; New York Times, February 5, 1930.

"United States, Bureau of Labor Statistics.

"Lauck, New Industrial Revolution, p. 280.

" Lauck, New Industrial Revolution, p. 4.

"New York Times, December 6, 1929; December 15, 1930; New York World-Tele-
gram, April 6, 1930; New York Times, July 28, 1931.

"New York Journal of Commerce, November 25, 1930; National City Bank of New
York, Bulletin, May, 1931; New York Times, January 12, 1931; May 16, 1931; Decem-
ber 2, 1 931; Pennsylvania Department of Labor, Monthly Bulletin, November, 1932;
H. B. Myers, "The Earnings of Labor," American Journal of Sociology, May, 1932, p.
897; New York Times, April 10, 1931; Department of Commerce, Statistical Abstract
of the United States, 1933, p. 303; John T. Flynn, "Starvation Wages," Forum, June,

Notes 581

1933. p. 327; New York Ximes. February 27, 1933; New York Times and World-
Telegram, October 5, 1933.

"New York Times, January 19, 1934; William H. Lough, Business Finance (1922),
p. 475; Statistics of Income, 1930, p. 213, and 1931, p. 48.

"New York Times. October 18, 1933; New York World-Telegram, April 12, 1933;
New York Times, October 29, 1933; May 30, 1933; January 18, 1934.

CHAPTER VI

* Based on reports of the Federal Reserve Board.
' Wall Street Journal, July 15, 1933.

'New York Times, December 17, 1933.

* Federal Reserve Board, Bulletin. November, 1933, p. 173; New York Times, February
4, 1934.

"Bruce Bliven, "New England Waits," New Republic, December 20, 1933, p. 158;
New York Times, January 14, 1934; January 8, 1934; New York Evening Post, January
19. 1934.

* "Labor and the NRA," New Republic, October 25, 1933, p. 310.
'Editorial, "Unions for Technicians," New Republic, January 24, 1934, p. 296.

* New York World-Telegram, January 2, 1934.
"New York World-Telegram, September 26, 1933.

^'' "Labor — the Sore Point," Business Week., September 9, 1933, p. 5; New York
Times, November 8, 1933; New York World-Telegram, January 12, 1934.

"New York Times, September 17, 1933; September 19, 1933.

" New York Times, October 3, 1933.

"New York Times, September 17, 1933.

"New York Times, January 16, 1934.

"New York Times, October 11, 1933.

"W. L King, "Capital, Risk, Enterprise and Profits," The Economic Foundations
of Business, ed. by W. E. Spahr (1932), p. 119.

"New York Times, September 5, 1933; December 12, 1933; December 16, 1933.

"W. W. Hay, "Plant Overexpansion As a Logical Result of the Industrial Recovery
Act," Annalist, July 28, 1933, p. 115.

PART THREE
CHAPTER VII

* Computed from material in Department of Commerce, Statistical Abstract of the
United States, 1923, p. 289.

^Statistical Abstract, 1932, pp. 345, 371, 689.

CHAPTER VIII

^ Computed from material in Census of Manufactures for the respective years.
'Editorial, "Profits Under the NRA," New Republic, December 13, 1933, p. 118.
"National Bureau of Economic Research, Recent Economic Changes, v. II, p. 641.

582 Notes

CHAPTER IX

'J. M. Clark, The Economics of Overhead Costs, (i923)> PP- 386, 486-87.
'New York Times, July 2, 1933.

'W. W. Hay, "Plant Overexpansion As a Logical Result of the Industrial Recovery
Act," Annalist, July 28, 1933, p. 115.

PART FOUR

Introductory

*New York Times, July 25, 1933; September 5, 1933; August 13, i933; Rexford Guy
Tugwell, "The Ideas Behind the New Deal," New York Times, July 16, 1933; Septem-
ber 13, 1933.

'Victor S. Clark, History of Manufactures in the United States (1928), v. II, p.
838; Magnus W. Alexander, New York Times, November 4, 1929; P. W. Martin, "The
Technique of Balance: Its Place in American Prosperity," International Labour Review,
October, 1929, p. 494.

'David A. Wells, Recent Economic Changes (1889), pp. 330, 381; J. A. Dacus, The
Great Strides (1877), p. 19; Dorothy W. Douglas, "Ira Steward on Consumption and
Production," Journal of Political Economy, August, 1932, pp. 536-37.

* Jacob Vanderlint, Money Answers All Things (i734)» PP- 64, 6(), 76, 87.

CHAPTER X

*M. 'J. Bonn, The Crisis of Capitalism in America (1931), p. 128.
'Editorial, "Census of Manufactures," New York Journal of Commerce, March i,
1929.

* John R. Arnold, "The Trend of Consumption in the United States," Annalist, Octo-
ber 5, 1928, p. 511.

* Frederick C. Mills, Economic Tendencies in the United States (1932), p. 244.
"Mills, Economic Tendencies, p. 281.

'Mills, Economic Tendencies, pp. 251, 282.

' E. H. Welch, "Purchasing Power and Wage Policy," Bulletin of the Taylor Society,
October, 1932, pp. 182-83.

"G. H. Phelps, Our Biggest Customer (1929). P- 18.

CHAPTER XI

^Editorial, Annalist, July 16, 1926, p. 68.

' W. W. Hay, "Manufacturing of New Products an Escape from Effects of Saturated
Markets," Annalist, December 12, 1930.

*C. T. Murchison, "Requisites of Stabilization in the Cotton Textile Industry,"
American Economic Review, Supplement, March, 1933, p. 72.

*W. W. Hay, "Plant Overexpansion As a Logical Result of the Industrial Recovery
Act," Annalist, July 28, 1933, p. 115.

'"Taking up the Slack with Sidelines," Literary Digest, June 12, 1926, p. 84; New
York Times, September 19, 1931; Iron Age, December 22, 1932, p. 956.

"New York Times, November i, 1931; R. F. Martin, "Industrial Overcapacity,"
Bulletin of the Taylor Society. June, 1932, pp. 96-99; C. E. Eraser and G. E. Doriot,
Analyzing Our Industries (1932), p. 253; Statistical Abstract, 1931, p. 457; Sumner H.

Notes 583

Slichter, Modern Economic Society (i 931), pp. 5-6; Walter N. Polakov, The Power Age
(1933), p. 82.

'New York Times, September 11, 1932; New York Journal of Commerce, January
3, 1928; Statistical Abstract, 1932, p. 58.

*J. George Frederick, president of the Business Bourse, "What Price Super-Selling,"
Advertising and Selling, January 25, 1928, pp. 19-20.

® G. W. Stocking, "Oil Industry," Encyclopedia of the Social Sciences, v. XI, p. 442;
M. Thorpe, "The Business Revolution of 1927-37," Nation's Business, March, 1927, p.
27; New York Journal of Commerce, March 23, 1926; Printers Inf{, May 23, 1929,
p. 133; New York Journal of Commerce, November i, 1929; "Sugar Institute Starts
National Advertising Campaign," Printers Ink, February 21, 1929, p. 57; J. George
Frederick, "What Price Super-Selling," Advertising and Selling, January 25, 1928, p.
20; George Mansfield, "How Long Will Luxuries Stay on Top," Advertising and Selling,
January 29, 1929, p. 22; "Candy, a Billion Dollar Muddle," Nation's Business, August,
1927, p. 17; Editorial, "The Chain Stores Wield the Big Stick," Advertising and Selling,
July 25, 1928, p. 29; New York Times, September 26, 1932.

*°W. C. Plummer, "Instalment Selling," Encyclopedia of the Social Sciences, v. VIII,

P- 75.

"J. George Frederick, "Is Progressive Obsolescence the Path Toward Increased Con-
sumption," Advertising and Selling, September 5, 1928, p. 19-20.

"Thomas C. Sheehan, "Must We Limit Production," The Magazine of Business,
February, 1928, p. 152.

"Carl Brinkmann, "Luxury," Encyclopedia of the Social Sciences, v. IX (1933), p.
636.

"C. T. Murchison, "Business Activity Upheld by Stock Market Gains," Annalist,
September 9, 1932, p. 333.

"Frederick C. Mills, Economic Tendencies in the United States (1932), p. xvii;
Commercial and Financial Chronicle, October 5, 1929, p. 2137.

"New York Evening Post, October 10, 1929; Department of Commerce, Statistical
Abstract, 1931, p. 319.

^''Annalist, April 7, 1931.

"Investment Research Bureau, Making Money in Stocks (1928), p. 7; New York
World-Telegram. February 20, 1933.

"•Leland Rex Robinson, "Investment Trusts," Encyclopedia of the Social Sciences,
V. VIII (1932), p. 280.

'"Bonn, The Crisis of Capitalism, p. 123.

"Joseph Stagg Lawrence, Wall Street or Washington? (1929). P- 26.

"New York Times, October 22, 1929; December 3, 1929.

"Guaranty Trust Company, Guaranty Survey, December 30, 1929, p. i.

"New York Journal of Commerce, June 16, 1928.

*" Bureau of Internal Revenue, Statistics of Income, 1928, pp. 11-13.

"Paul Clay, "Economic Outlook for 1929," Journal of the American Statistical Asso-
ciation, June, 1929, p. 182.

"New York Times, July 7, 1933.

CHAPTER XII

^Frederick C. Mills, Economic Tendencies in the United States (1932), pp. 278-80.
''Department of Commerce, Commerce Yearbook., 1931, pp. 5, 324, 415, 417.

584 Notes

"W. H. Rastall, "The Machinery Industry at Grips with the Depression," Mechanical
Engineering, February, 1933, pp. lo-ii.

* Karl Marx, Capital, v. Ill, pp. 293, 301-03.
'Irving Fisher, The Money Illusion (1928), p. 33.

"John Maynard Keynes, A Treatise on Money (1930), v. I, p. 179; v. II, p. 381.

'Keynes, A Treatise on Money, v. II, p. 381.

'Keynes, "Causes of the World Depression," Forum, January, 1931, p. 23.

'L. A. Rufener, Price, Profit and Production: Principles of Economics (1928), p. 15.

CHAPTER XIII

*L. Valenstein and E. B. Weiss, Business Under the Recovery Act (191 3), p. 237.

'Rexford Guy Tugwell, "Design for Government," Political Science Quarterly, Sep-
tember, 1933, pp. 323-26.

'W. H. Rastall, "The Machinery Industry at Grips With the Business Cycle," Me-
chanical Engineering, January, 1933, p. 11; David Friday, "The Formation of Capital,"
American Economic Review, Supplement, March, 1933, p. 93.

* William Green, "National Planning: Labor's Point of View," New York Times,
December 17, 1933.

'Edward S. Mead, "Adjusting Excess Producti^ve Capacity to Closed Markets — the
'Institutes,'" Annalist, July 19, 1929, p. 98.

•New York Times, November i, 1932; New York Tribune, October 8, 1933; Clair
Price, "A New Champion Enters the Irish Lists," New York Times, September 17, 1933.

' Valenstein and Weiss, Business Under the Recovery Act, p. 236.

*Mordecai Ezekiel, "Can We Starve Ourselves Rich," To-day, March 10, 1934, p. 8.

•Frank Briggs, New York Times, September 28, 1933.

*° Valenstein and Weiss, Business Under the Recovery Act, p. 237.

"Clark Foreman, "The End of Internationalism," New Republic, August 9, 1933,
p. 333.

"Malcolm Muir, Deputy Administrator of the NRA, New York World-Telegram,
September 27, 1933.

"John Maynard Keynes, A Treatise on Money (1930), v. II, pp. 208, 386.

"Lawrence Dennis, Is Capitalism Doomed? (1932), p. 36.

" Karl Marx, Capital, v. Ill, p. 304.

PART FIVE

Introductory

*W. H. Beveridge, Unemployment, a Problem of Industry (1912), p. 68.
'Paul H. Douglas, Real Wages in the United States, 1890-1 g26 (1930), p. 460.

CHAPTER XIV

*J. M. Clark, The Economics of Overhead Costs (1924), p. 93; Boris Stern, "Glass
and Pottery Industries," Encyclopedia of the Social Sciences, v. VI (1931), p. 673;
National Bureau of Economic Research, Recent Economic Changes, 2 vols. (1929), v.
II, p. 513; Labor Research Association, Labor Fact Book. (1930), p. 90; Meredith
Givens, "Iron and Steel Industry," Encyclopedia of the Social Sciences, v. VIII (1932),
p. 303; Frederick C. Mills, Economic Tendencies in the United States (1932), p. 296;

Notes 585

Department of Commerce, Statistical Abstract of the United States, 1931, pp. 387,
835; William Haber, "Construction Industry," Encyclopedia of the Social Sciences,
V. IV (1931), p. 265; National Bureau of Economic Research, Recent Economic
Changes, v. I, p. 248.

^Department of Commerce, Commerce Yearbook, 1930, v. I, p. 28.

'Leo Wolman, "Machinery and Unemployment," Nation. February 22, 1933, p. 203.

* Dexter S. Kimball, "Changes in New and Old Industries," Recent Economic
Changes, v. I, p. 92.

^Statistical Abstract, 1931, p. 637.

'W. I. King, The National Income and Its Purchasing Power (1930), p. 50.

^ King, National Income, p. 50.

' King, National Income, p. 50.

'Wesley C. Mitchell, "A Review," Recent Economic Changes, v. II, p. 878.

"New York Times, January 11, 1928.

"Paul H. Douglas and Aaron Director, The Problem of Unemployment (1931),
pp. 132, 141-42.

"Clinch Calkins, Some Folk.s Won't Wor\ (1929), p. 13.

"Isador Lubin, The Absorption of the Unemployed by American Industry (1929),
pp. 4-10.

"Paul U. Kellogg, "When Mass Production Stalls," Survey Graphic, March, 1928,
p. 685.

"True Story Promotion Department, Netv Market News, October, 1928, p. i;
quoted from Forbes Magazine.

** Calkins, Some Fol^s Won't Work, PP- 27-28, 34-36, 40-42, 117, 122-24, i57-

"New York Times, December 15, 1930.

^^Statistical Abstract, 1932, p. 50.

"New York World -Telegram, January 23, 1932.

'"American Engineering Council, Safety and Production (1928), p. 76; Louis
Resnick, "Saving and Wasting Lives," Nation, May 21, 1929, pp. 593-94; May 28,
1929, p. 622; Labor Research Association, Labor Fact Book, P- 96; Department of
Labor, Monthly Labor Review, July, 1930, p. 85; Royal Meeker, "Mining Accidents,"
Encyclopedia of the Social Sciences, v. X (1933), p. 511; Monthly Labor Review,
November, 1931, p. 27; W. E. Spahr, ed.. The Economic Foundations of Business,
2 vols. (1931), V. II, p. 321; Hugh Quigley, "Electric Power," Encyclopedia of the
Social Sciences, v. V (1931), p. 467.

CHAPTER XV

* Dexter S. Kimball, "Industry," National Bureau of Economic Research, Recent
Economic Changes, 2 vols. (1929), v. I, p. 93.

^ Paul H. Douglas, Real Wages in the United States, 1890-1926 (1930), p. 411.
'Douglas, Real Wages, p. 459.

* Bureau of the Census, Manufactures, 1929, v. I (1933), p. 15.

'Department of Commerce, Commerce Yearbook, 1930, p. 28; Statistical Abstract
of the United States, 1931, p. 669.

'Allan W. Rather, Is Britain Decadent? (i93i)» P- 34; V. A. Demant, This
Unemployment (1929), p. 39; Harold Callender, "The Unemployment Riddle," New
York Times, December 4, 1932; Great Britain, Committee on Finance and Industry,

586 Notes

Report (Macmillan Report, 1931), p. 308; E. Varga, The Decline of Capitalism (1928),
p. 19; International Labour Office, International Labour Review, June, 1933, pp. 809-11,

^ New York Times, December 17, 1933.

^International Labour Review, June, 1933, pp. 809-11; New York Herald Tribune,
December 28, 1932.

° Census of Manufactures, 1929, Preliminary Report.

'"New York Times, February 13, 1933.

"New York Times, November 18, 1932.

"Editorial, "Unions for Technicians," New Republic, January 24, 1934, p. 295;
"Last Year's Unemployment Relief," Electrical Engineering, November, 1932, pp.
809-10; Department of Labor, Monthly Labor Review, August, 1931, p. 261; New
York World-Telegram, November 14, 1932; New York Times, November 12, 1932;
November 6, 1933.

^' New York Times, November 4, 1930; December 14, 1932; January 14, 1932;
New York World-Telegram, November 13, 1931; January 14, 1932; Laura T. Turn-
ridge, "We Haven't Saved a Cent," Nation, September 16, 1931, p. 281; New York
Times, January 7, 1932; New Republic, January 27, 1932; New York Times, July
29» 1933; January 14, 1934.

"New York Times, December 29, 1933; January 13, 1934; January 14, 1934;
January 19, 1934; Bruce Bliven, "New England is Waiting," New Republic, December
20, I933> P- 158.

"New York Times, December 17, 1933.

"C. R. Whittlesey, "Rubber," Encyclopedia of the Social Sciences, v. XIII (1934)-

"New York Times, December 30, 1933.

^* Stuart Chase, "What Hope for the Jobless," Current History, November, 1933,
pp. 131-32.

^® New York Times, December 9, 1933.

'"Karl Marx, Capital, v. I, pp. 693-95, 698, 702, 712.

*^ Great Britain, Royal Commission on Unemployment Insurance, Report (1932),
pp. 91-93.

"Royal Commission on Unemployment, Report, p. 380.

"New York Times, January 14, 1933.

"New York Times, October 31, 1869.

^^ Maxine Davis, "200,000 Vagabond Children," Ladies Home Journal, September
1932, p. 8.

'* New York Times, November 21, 1932.

"New York Times, January 21, 1934.

^^ V. Trivanovitch, "Relief for the Unemployed," New York Times, February
12, 1933.

CHAPTER XVI

* A. P. Usher, A History of Mechanical Inventions (1929), pp. 274-76.

* Walter Rautenstrauch, New York Herald Tribune, December 29, 1932.
' Usher, A History of Mechanical Inventions, pp. 337-40.

* Karl Marx, Capital, v. I, 396.
° Marx, Capital, v. I, p. 407.

' Marx, Capital, v. I, p. 408.

Notes 587

^Meredith Givens, "Iron and Steel Industry," Encyclopedia of the Social Sciences,
V. VIII (1932), p. 299.
*Marx, Capital, v. I, 417-18.
' Marx, Capital, v. I, p. 429.

"Department of Commerce, Statistical Abstract of the United States, 1904, p. 530;
1 93 1, p. 420.

"Herbert Heaton, "Industrial Revolution," Encyclopedia of the Social Sciences,
V. VIII (1931), p. 8.

"E. Varga, The Decline of Capitalism (1928), pp. 39-40; A Matare, Werkzeuge,
Maschinen und Apparate (1913), pp. 89-95.
^* Statistical Abstract, 1923, p. 289.

"United States Bureau of Labor Statistics, History of Wages in the United States
(1929), pp. 7-10.
^^ History of Wages, pp. 84-86.

" R. G. Hurlin and Meredith B. Givens, "Shifting Occupational Patterns," Recent
Social Trends in the United States, 2 vols. (1933), v. I, pp. 281, 284.
"J. A. Hobson, The Evolution of Modern Capitalism (1912), p. 386.
^^ Iron Age, October 13, 1932, p. 572.

""Paint Plant Goes Automatic," Business Wee\, June 11, 1930, p. 24.
"Walter N. Polakov, The Power Age (1933), p. 98; "Inspection of Surfaces for
Minute Defects," Mechanical Engineering, September, 1932, p. 647; New^ York Times,
December 7, 1932.

^*W. F. Ogburn and S. C. Gilfillan, "The Influence of Invention and Discovery,"
Recent Social Trends, v. I, p. 133.

"M. H. Hedges, "Mechanic," Encyclopedia of the Social Sciences, v. X (1933),
p. 264.

"Polakov, Power Age, p. 119.
^* Karl Marx, The Gotha Program, p. 31.
''Polakov, Power Age, p. 119.

** New York World-Telegram, November 21, 1933.
"New York Times, January 12, 1933.
^ New York Times, September 14, 1933.
"New York Times, December 31, 1932.

'"Webster Powell and Addison T. Cutler, "Tightening the Cotton Belt," Harpers,
February, 1934, p. 308.

"Department of Commerce, Census of Manufactures, 1929, v. I, p. 16.
""M. Rubinstein, "Relations of Science, Technology and Economics Under Capitalism
and in the Soviet Union," Science at the Crossroads (1931), p. 9.
"New York Times, February 4, 1934.
"Marx, Capital, v. I, p. 417.
" Marx, Capital, v. II, p. 363.
"Marx, Capital, v. I, p. 846.

PART SIX

Introductory
* New York Times, May 21, 1927.
'New York Times, February 9, 1934.

588 Notes

CHAPTER XVII

^ Paul T. Homan, Contemporary Economic Thought (1928), pp. 27, 59.

* Simon Kuznets, "National Income," Encyclopedia of the Social Sciences, v. XI,
(1933), p. 223.

' Lewis Corey, "Fortunes, Private: Modern," Encyclopedia of the Social Sciences, v.

VI (1931). p- 396.

*W. I. King, The Wealth and Income of the People of the United States (191 5),
p. 231.

* Bureau of Internal Revenue, Statistics of Income, 191 6, p. 26.
'^Statistics of Income, 1925, p. 13.

'Simon Kuznets, National Income, 1929-32 (1934), p. 14.

* Statistics of Income for the respective years.

* Statistics of Income, 191 6, p. 31.

"New York Times, September 17, 1933; January 18, 1934; February 9, 1934; De-
cember 16, 1932; May 30, 1933; September 8, 1933; September 11, 1933; October 18,
1933.

"John T. Flynn, Graft in Business (1930), p. 55.

"E. Varga, "Economics and Economic Policy," International Press Correspondence,
December 2, 1931, p. 1094.

^^ Statistics of Income, 1931, p. 39.

^* Statistics of Income, 1924, pp. 11, 123, 176; 1929, p. 234.

"Department of Commerce, Statistical Abstract of the United States, 1931, p. 112.

"Department of Agriculture, Yearbooks of Agriculture, 1932, pp. 501, 893, 912;
Crops and Markets, July 1929, p. 254.

"W. I. King, The National Income and Its Purchasing Power (1930), p. 306.

"Eric Englund, "Farm Mortgages," New York Times, February 5, 1933.

^^ Yearbook of Agriculture, 1932, p. 492.

^"New York Times, November 22, 1932.

"New York Times, January 16, 1928; George Soule, The Useful Art of Economics
(1929), p. 66.

"W. T. Foster and Waddill Catchings. Profits (1925), p. 150.

"C. K. Hobson, The Export of Capital (191 4), pp. 66-67.

CHAPTER XVIII

* F. P. Stockbridge, "The New Capitalism," Saturday Evening Post, November 6,
1926, p. 226.

^National Bureau of Economic Research, Recent Economic Changes, 2 vols. (1929),
V. I, p. xii.

^ Adolf A. Berle and Gardiner C. Means, The Modern Corporation and Private
Property (1933). P- 56.

* Joseph S. McCoy, "Sources of Prosperity," American Bankers Association Journal,
January, 1930, p. 703.

° Berle and Means, Modern Corporation, pp. 66-67.
"Bureau of Internal Revenue, Statistics of Income, 1929, p. 21.

' Joseph S. McCoy, "The U. S. Legion of Capitalists," American Bank^s Association
Journal, February, 1927, p. 626.

*H. M. Graves, "Gaps in the Tax Fence," New Republic, January 31, 1934, p. 329.

Notes 589

' Albert W. Atwood, "The New Ownership," Saturday Evening Post, February 13,
1926, p. 122.

" Robert F. Foerster, "Employee Stock Ownership," Encyclopedia of the Social
Sciences," v. V (1931), p. 506.

" B. C. Forbes, "Labor to Become Capital," Forbes, December i, 1927, p. 9.

"New York Tim^s, October 28, 1928. R. F. Foerster and Else H. Dietel, Employee
Stock Ownership in the United States (1926), pp. 62-64.

"Editorial, Manufacturing Industries, January, 1929, p. 65.

"New York Times, April 5, 1929.

"Editorial, New York Journal of Commerce, April 19, 1929.

"Nicholas Paine Oilman, Profit-Sharing (1889), pp. 109, 265.

" Foerster and Dietel, Employee Stock Ownership, p. 90.

^* Abram S. Hewitt, The Mutual Relations of Capital and Labor (1878), p. 17.

" Oilman, Profit-Sharing, p. 394.

^" Frank Barkley Copley, Frederick W. Taylor, 2 vols. (1916), v, I, p. 16.

** H. L. Gantt, Industrial Leadership (191 6), pp. 65, 67.

"Computed from material on occupations in Statistical Abstract, 1926.

^'Abraham Epstein, "Outwitting Unionism," New Republic, April 6, 1927, p. 193.

"Sumner H. Slichter, Modern Economic Society (1931), pp. 81-82.

"' Slichter, Modern Economic Society, pp. 83-84, 887.

**Karl Marx, Capital, v. Ill, pp. 451-52, 454-56.

CHAPTER XIX

^Federal Trade Commission, National Wealth and Income (1926), p. 59.

^ Federal Trade Commission, National Wealth, p. 58.

'Bureau of Internal Revenue, Statistics of Income, 1923, p. 42; 1929, p. 54.

* Silas Bent, "Labor's Window on Wall St.," The Nation's Business, June, 1924, p.

25-

'Albert F. Coyle, "One of Labor's Greatest Hopes," Labor Age, May, 1926, p. 3.

'M. R. Neifeld, "True Effect of Depression on Savings," Annalist, April, 1931, p.
635.

^Department of Commerce, Statistical Abstract of the United States, 1931, p. 275.

* New York Times, January 15, 1927.

"Neifeld, "True Effect of Depression," Annalist, April, 1931, p. 635.

""Small Depositors, Small Borrowers," Business Week, July 29, 1933, p. 19.

'^'^Statistical Abstract, 1931, p. 279.

"New York Times, October 9, 1932.

"National Bureau of Economic Research, Recent Economic Changes, 2 vols. (1929),
V. II, p. 486.

"Paul H. Nystrom, Economics of Consumption (1929), p. 504.

^^Statistical Abstract, 1931, p. 308.

"Maurice Taylor, The Social Cost of Industrial Insurance (1933), pp. 138, 152.

^''Statistical Abstract, 1931, p. 309.

" Nystrom, Consumption, p. 502.

^* Statistics of Income, 1931, p. 48.

"H. G. Moulton, The Financial Organization of Society (1924), p. 488.

"Frederick C. Mills, Recent Economic Tendencies in the United States (1932), pp.
492-96.

590 Notes

'"Isador Lubin, "Mining. Labor," Encyclopedia of the Social Sciences, v. X (1933),
p. 505.

"Victor S. Clark, History of Manufactures in the United States, 2 vols. (1928),
V. I, p. 145-

"Vernon Parrington, The Romantic Revolution in America (1927), p. 224.

^Gustavus Myers, History of the Great American Fortunes, 3 vols. (1909-10), v.
I, p. 58.

'" Charles A. and Mary Beard, Rise of American Civilization, 2 vols. (1928), v. I,
p. 342.

" Computed from material in M. Y. Beach, The Wealth and Biography of the
Wealthy Citizens of the City of New York. (1855).

"^John R. Commons and Associates, History of Labour in the United States, 2 vols.
(1918), V. I, p. 305.

** Lewis Corey, The House of Morgan (1930), p. 42.

'°J. L. and B. B. Hammond, The Rise of Modern Industry (1925), p. 158.

"J. Burnley, "Studies in Millionaires," Chambers Journal, March, 1901, p. 215.

'^Howard Hensman, Cecil Rhodes (1901), p. 150.

"Burnley, "Millionaires," Chambers Journal, March, 1901, p. 215.

"Charles and Mary Beard, American Civilizatdon, v. II, pp. 170, 199.

" W. Z. Ripley, Railroads, Rates and Regulation (191 2), pp. 37-39.

** Corey, House of Morgan, p. 144.

"Eliot Jones, The Trust Problem in the United States (1922), p. 89.

^Bureau of Corporations, Report . . . on the Steel Industry (1911), p. 112.

'"Henry Clews, Fifty Years in Wall St. (1908), p. 746.

"Franklin Pierce, The Tariff and the Trusts (1907), p. 122.

** M. A. Marsh, "Keith, Minor Cooper," Encyclopedia of the Social Sciences, v.
VIII (1932), pp. 553-54; John Dos Passos, The 42nd Parallel (1930), "Emperor of
the Caribbean," pp. 249-52.

"New York Tribune, February 11, 1892.

"Ida Tarbell, The Life of Elbert H. Gary (1925), p. 154.
"Corey, House of Morgan, pp. 282, 301.

^ New Republic, February 21, 1934, 30-31.

*^ Statistics of Income, 1929, p. 15.
"Statistics of Income, 1929, p. 18.

** Robert R. Doane, The Measurement of American Wealth (1933), p. 29.

"New York Times, October 2, 1932.

""Editorial, "Does Responsible Ownership Function," New Republic, April 21, 1926,
p. 266.

"New York Times, January 29, 1934.

PART SEVEN
CHAPTER XX

* Rexford Guy Tugwell, "The Ideas Behind the New Deal," New York Times
Magazine, July 16, 1933, p. 2.
'Department of Commerce, Statistical Abstract of the United States, 1923, p. 289.

Notes 591

^United States Industrial Commission, Report and Proceedings (1900-02), v. I, p. 15.

* United States Bureau of Corporations, Report . . . on the Steel Industry (191 1),
pp. 251-57.

^ A. P. Usher, "The Rise of Monopoly in the United States," American Economic
Review, Supplement, March, 1933, p. 1-2.

"John Moody, Truth About the Trusts (1905), p. xi.

' United States. Congress. House of Representatives, Investigation of Financial and
Monetary Concentration in the United States [Money Trust Investigation], Report
(1913). PP- 89-90.

* Lewis Corey, The House of Morgan (1930), pp. 390-94.

® W. L. Thorp, "The Persistence of the Merger Movement," American Economic
Review, Supplement, March, 1932, p. 78.

^°New^ York Times, March i, 1931; March 2, 1933.

" Editorial, "Fashions in Finance — ^The Merger," Commercial and Financial Chronicle,
February 16, 1929, p. 943.

'^Department of Commerce, Census of Manufactures, 1929, v. I, pp. 61, 95.

" Census of Manufactures, 1929, v. I, pp. 61-62.

"Bureau of Internal Revenue, Statistics of Income, 1924, p. 11.

^" Census of Manufactures, 1929, v. I, p. 94.

^^ Statistics of Income, 1929, p. 234.

'^''Statistics of Income, 1929, pp. 338-39.

^^ Statistics of Income, 1931, p. 15.

'^ Nevi^ York World-Telegram, June 9, 1932.

^^ Adolf A. Berle and Gardiner C. Means, The Modern Corporation and Private
Property (1933). PP- 33-35-

^^ C. E. Eraser and G. E. Doriot, Analyzing Our Industries (1932), p. 263; United
States Bureau of Mines, Mineral Resources of the United States, 1929, v. I, pp. 487-99;
G. W. Stocking, "Oil," Encyclopedia of the Social Sciences, v. XII (i933)» PP- 443-44;
New York Times, August 30, 193 1; Editorial, "Unscrambling Radio's Eggs," New
Republic, December 7, 1932, p. 86; H. W. Laidler, The Concentration of Control in
American Industry (1931), pp. 141, 282.

^^ Federal Trade Commission, National Wealth and Income (1926), p. 4; Mineral
Resources of the United States, 1929, v. I, pp. lo-ii; v. II, p. 715; New York Times,
July 17, 1931.

^' New York Journal of Commerce, December 6, 1929. New York Times, March i,
1 931; W. L. Thorp, "The Changing Structure of Industry," Recent Economic Changes,
2 vols. (1929), v. I, p. 187. New York Times, March 15, 1931; W. S. Raushenbush
and H. W. Laidler, Power Control (1928), pp. 68-71.

^* New York Times, November 14, 1931; New York Journal of Commerce, February
16, 1929.

^■^New York Times, May 14, 1933.

'^'^ Statistics of Income, 1923, p. 26; 1929, p. 127.

" Computed from Poor's Directory of Directors, 1 93 1 , and Moody's Manual of Invest-
ments, Industrials and Public Utilities, 1931.

^ Leon Henderson, New York Times, February 25, 1934.

"New York Times, February 28, 1934.

'"New York Times, March 21, 1934; New York Herald Tribune, April 18, 1934.

" Mauritz A. Hallgren, "The NRA Oil Trust," Nation, March 7, 1934, pp. 271-73;
New York World-Telegram, February 14, 1934; New York Times, March 13, 1934.

592 Notes

CHAPTER XXI

* Adolf A. Berle and Gardiner C. Means, The Modern Corporation and Private
Property (1933), p. 69.

'Berle and Means, Modern Corporation, pp. 94-116.

'Lewis Corey, The House of Morgan (1930), pp. 396-97.

*Karl Marx, Capital, v. Ill, p. 393.

'New York Journal of Commerce, May 10, 1930.

"Department of Commerce, Commerce Yearbook,, 1931, v. I, p. 634; Moody's Manual
of Investments, Ban\s and Finance, 1931, p. a47; New York Times, December 19,
1 931; New York Journal of Commerce, October 29, 1929; Corey, House of Morgan,
p. 446.

^ New York Times, August 2, 1930; January 27, 1933; Corey, House of Morgan,
p. 446.

* Corey, House of Morgan, pp. 446-48.

"New York Journal of Commerce, May 10, 1930; Harvey O'Connor, Mellon's
Millions (1933), pp. 422-29.

"Marx, Capital, v. Ill, p. 519.

" Kurt Wiedenfeld, "Combinations, Industrial," Encyclopedia of the Social Sciences,
V. Ill (1930), p. 672.

"R. B. Prescott, New York Post, April 15, 1933.

" R. H. Tingley, "What Can We Do with Muscle Shoals," American Mercury,
February, 1934, p. 218.

"New York Times, December 19, 1931; March 9, 1933; New York World-Telegram,
March 10, 1933.

"Dane Yorke, "The Radio Octopus," American Mercury, August, 1931, p. 387.

"Schuyler C. Wallace, "Industry's Inner Conflict," Today, March 10, 1934, P- 20.

"New York Herald Tribune, March 4, 1934.

"M. C. Rorty, in Recent Economic Changes, 2 vols. (1929) v. II, p. 864.

"Marx, Capital, v. Ill, p. 1003.

^" Robert Weidenhammer, "Causes and Repercussions of the Faulty Investment of
Corporate Savings," American Economic Review, Supplement, March, 1933, p. 37.

'* Ralph C. Epstein, "Earnings on Invested Capital," Annalist, February 9, 1934, p.
261; March 2, 1934, p. 372.

"New York Times, September 23, 1932.

"New York Times, November 28, 1933; January 19, 1934; John W. Hester, "The
Blight of Holding Companies," Current History, March, 1934, p. 682,

"Rudolf Hilferding, "Probleme der Zeit," Die Gesellschaft, April, 1924, p. 2.

^ Joseph Schumpeter, "The Instability of Capitalism," Economic Journal, September,
1928, pp. 384-85-

CHAPTER XXII

* Achille Viallate, Economic Imperialism and International Relations During the Last
Fifty Years (1923), p. 60.

'C. K. Hobson, The Export of Capital (1914), p. 58.
*Hobson, Export of Capital, p. 59.

* J. A. Hobson, Imperialism (1902), p. 60.

'Franklin H. Giddings, Democracy and Empire (1901), p. 274.

Notes 593

®Leland H. Jenks, Our Cuban Colony, A Study in Sugar (1928), pp. 33-37; R. D.
Gibson, Forces Mining and Undermining China (191 4), pp. 168-69; Leslie Bennett
Tribolet, International Aspects of Electrical Communications in the Pacific Area (1929),
PP- 157-58; Walter Millis, The Martial Spirit (1932), pp. 27, 47.

^ Giddings, Democracy and Empire, p. 283-84.

^Brooks Adams, America's Economic Supremacy (1900), pp. i, 12, 23, 32, 222.

^Editorial, Banl{ers' Magazine, August, 1900, p. 160.

^^ Lewis Corey, The House of Morgan (1930), pp. 322-37.

" C. W. Phelps, The Foreign Expansion of American Bankj (1927), pp. 146-48;
Robert W. Dunn, American Foreign Investments (1926), p. 161.

"Max Winkler, Foreign Bonds: An Autopsy (1933), p. xix; Editorial, New Re-
public. January 27, 1932, p. 283.

"L. Bader, World Developments in the Cotton Industry, (1925), p. 179.

^* C. E. Eraser and G. F. Doriot, Analyzing Our Industries (1932), p. 26.

" O. H. Cheney, "America in the World Steel Market," Annalist, November 25, 1927,
p. 819.

^^ New York Times, June 22, 1933.

"Editorial, "The Economics of the Chaco War," New Republic, February 22, 1933,

P- 33.

^'^ J. F. Normano, The Struggle for South America (1931), p. 66.

^^ Winkler, Foreign Bondf, p. xvi; New York Times, October 25, 1933; Editorial,
"Wrecking a Continent," New Republic, September 27, 1932, p. 276; United States
Senate, Hearings Before the Senate Committee on Finance, Sales of Foreign Bonds or
Securities (1932), pp. 1289-95.

^*' United States Senate, Sales of Foreign Bonds, pp. 1849-67; Harvey O'Connor,
Mellon' s Millions (1933), pp. 194-206.

^^ Erich W. Zimmerman, "The Resource Hierarchy of Modern World Economy,"
Weltwirtschaftliches Archiv, April, 1931, pp. 458-63.

^^ Department of Commerce, American Underwriting of Foreign Securities in 1929
(1930), p. 14; New York Times, February 20, 1927.

" B. R. Wallace and L. R. Edminster, International Control of Raw Materials (1930),
pp. 244-46; Alfred Marcus, "Metals," Encyclopedia of the Social Sciences, v. X (i933)>
pp. 364-88; C. L. James, "International Control of Tin Ore," Harvard Business Review,
October, 1932, p. 69; New York Times, December 2, 1930; J. W. Frey, "Geographic
Distribution of World Mineral Production," Mineral Economics (1932), pp. 46-48.

** C. H. Huff, "The Copper Industry," New York World-Telegram, December 13,
1932.

^''Parker T, Moon, Imperialism and World Politics (1926), pp. 515-16, 519; Busi-
ness Weeli, January 25, 1933, p. 24; New York Times, January 2, 1934; April i, 1934.

'^ New York Times, May 10, 1933.

"New York Herald Tribune, February 11, 1934.

^* Editorial, "The Economics of the Chaco War," New Republic, February 22, 1933,

pp. 33-34-

** Ludwell Denny, America Conquers Britain (1930), p. 332.

'""Battle for World's Telephones," Business Week, October 20, 1930, pp. 11-12.

" Winkler, Foreign Bonds, p. xiv.

"'F. M. Turner, "The Dye Industry," Annalist, December 7, 1928, p. 893; New
York Times, June 4, 1930; Moody's Manual of Investments, Public Utilities, 1932,
under names of the respective companies.

594 Notes

" M. Pavlovitch, The Foundations of Imperialist Policy (1922), p. 66,

" Denny, America Conquers Britain, p. 402.

'' Moon, Imperialism, pp. 539-40.

** New York Times, March 19, 1934.

"Raymond Leslie Buell, New York Times, August 12, 1933.

^M. J. Bonn, "Imperialism," Encyclopedia of the Social Sciences, v. VII (1932),
p. 613.

^* "Who Buys Foreign Bonds — and Why," Literary Digest, January 29, 1927, p. 60;
New York Times, December 19, 1931.

*"New York Times, September 7, 1933; December 19, 1933.

*^ Jenks, Our Cuban Colony, p. 298.

** New York Times, February 23, 1934.

"Department of Commerce, Statistical Abstract of the United States, 1931, p. 483.

PART EIGHT

Introductory

' A. A. Berie, "The Social Economics of the New Deal," New York Times, October
29. 1933.

*John Bauer and Nathaniel Gold, Permanent Prosperity (1934), p. 203.

CHAPTER XXIII

* Oskar Morgenstern, "Free and Fixed Prices During the Depression," Harvard Busi-
ness Review, October, 1931, p. 62.

*Sir Arthur Salter, Recovery, the Second Effort (1932), p. 19.
'New York Times, April 22, 1934.

* New York Times, March 20, 1933.
"New York Times, November 11, 1933.

* Department of Commerce, Statistical Abstract of the United States, 1931, p. 413.
''Statistical Abstract, 1931, p. 836.

* G. E. Barber, "The Air Conditioning Industry," Harvard Business Review, April,
1932, p. 358.

° New York Times, February 24, 1934.

"New York Times, May 26, 1934.

^^Statistical Abstract, 1931, p. 819.

"New York Times, June 28, 1933; December 16, 1933.

^^Statistical Abstract, 1931, p. 816.

^* Gerhard Colm, "Why the Tapen Plan' for Economic Recovery Failed," Social
Research, February, 1934, p. 96.

^^ Lewis Mumford, "The Shortage of Dwellings and Direction," New Republic,
February 28, 1934, p. 70.

"Jonathan Mitchell, "The Armaments Scandal," New Republic, May 9, 1934, p. 353.

"New York Times, April 11, 1934; May 14, 1934.

"Hugh Quigley, "Fascism Fails Italy," Current History, June, 1934, pp. 258-59.

" Alvin H. Hansen, "Trade, Commerce, and Commercial Crises," American Economic
Review, September, 1933, p. 507.

'""Financing Capital Goods," Today, March 17, 1934, p. 21.

" New York Times, April 26, 1934.

Notes 595

"Editorial, "Profits Under the NRA," New Republic, December 13, 1933, p. 115.

"New York Times, May 9, 1934.

"Clark Foreman, "The End of Internationalism," New Republic, August 9, 1933,
P- 335.

^"^ New York Times, December 20, 1933; March 24, 1934; May 8, 1934.

^ New York Times, December 14, 1933; December 26, 1933; April 18, 1934; May
9, 1934.

"Department of Commerce, Commerce Yearbook, 1931, v. I, pp. 318-19.

** V. I. Lenin, Imperialism (191 6), p. 112.

CHAPTER XXIV

* Moody's Manual of Investments, Banks and Finance, 1933, pp. 2,666-70.

* Editorial, New York Post, "The New Deal and Steel," June 11, 1934.
^ H. I. Harriman, New York Times, June 25, 1933.

* Ethel B. Dietrich, "French Import Quotas," American Economic Review, December,
1933, p. 660.

''John A. Hobson, "'Recovery' in Great Britain," Nation, May 23, 1934, p. 589.
'Editorial, "Will Roosevelt Back Up Labor," New Republic, May 9, 1934, p. 351-52.
^ New York Times, March 6, 1934.

* Subcommittee of the Committee on Unemployment and Industrial Stabilization of
the National Progressive Conference, J. M. Clark, Chairman, Long Range Planning for
the Regularization of Industry (1932), p. 11.

'Paul T. Homan, "Economic Planning: the Proposals and the Literature," Quarterly
Journal of Economics, November, 1932, p. 18.

"Charles A. Beard, "A 'Five Year Plan' for America," Forum, July, 1931, pp. 1-2.

"Carl T. Schmidt, German Business Cycles (1934), pp. 266, 271.

^^ Stuart Chase, Out of the Depression — and After (1931), p. 25.

"V. I. Lenin, "Left" Communism, An Infantile Disorder (1920), p. 38.

"Karl Marx, The Eighteenth Brumaire of Louis Bonaparte, p. 14.

^'Carmen Haider, Capital and Labor Under Fascism (1930), pp. 99-101, 186-87.

"New York Times, January 17, 1934.

"New York Times, March i, 1934; Report on "The Political Structure of the Third
Reich," by Mildred Wertheimer, New York Times, June 17, 1934.

CHAPTER XXV

*Carl Russell Fish, The Rise of the Common Man (1927). PP- 8-12, 62, no.
^ Everett Dean Martin, The Conflict of the Individual and the Mass in the Modern
World (1932), p. 22.
'Ellsworth Huntington and Leon F. Whitney, The Builders of America (1927), p. 75.

* F. W. Taussig and C. J. Joslyn, American Business Leaders (1932), pp. 243, 251.
''Huntington and Whitney, Builders of America, p. 116.

'Lothrop Stoddard, The Rising Tide of Color (1921), pp. 164-67.
'New York Times, May 27, 1934.

* Stephen S. Visher, "A Study of the Type of the Place of Birth and Occupations of
the Fathers of the Subjects of Sketches in 'Who's Who in America,' " American Journal
of Sociology, March, 1925, p. 553.

* Taussig and Joslyn, American Business Leaders, pp. 234-37.

596 Notes

"O. R. Reynolds, The Social and Economic Status of College Students (1927), p. 14.

** H. G. Campbell, "High School Has a Boom," New York Times, September 24,
1933; Eunice Fuller Barnard, "Our Schools Face a Day of Reckoning," New York
Times, April 15, 1934; R. L. Duffus, Our Starving Libraries (1934), pp. 2-6.

"New York Times, April 11, 1934; June 17, 1934.

" Frederick L. Schuman, "Germany Prepares Fear," New Republic, February 7,

I934> p. 355.
"New York Herald Tribune, May 27, 1934.
"Charles A. Beard, A Charter for the Social Sciences (1932), p. 71.

CHAPTER XXVI

^ L. P. Edwards, The Natural History of Revolution (1927), pp. 6, 211, 218.
^ Karl Marx and Friedrich Engels, The Communist Manifesto, p. i.

* Stuart Chase, Out of the Depression — and After (1931), p. 15.
*Karl Marx, Capital, v. Ill, p. 919.

"Brooks Adams, America's Economic Supremacy (1900), p. 3.

' John R. Commons and Associates, A History of Labour in the United States, 2 vols.
(1918), V. I, pp. 237, 527.
^ Karl Marx, The Eighteenth Brumaire of Louis Bonaparte, pp. 21-22.

* Selig Perlman, A Theory of the Labor Movement (1928), pp. 232, 304-18.
" W. I. King, The National Income and Its Purchasing Power (1930), p. 62.
"Stuart Chase, The Economy of Abundance (1934), p. 257.

^* John R. Commons, "Labor Movement," Encyclopedia of the Social Sciences, v.
VIII (1932), P- 684.
"V. I. Lenin, "Left" Communism, An Infantile Disorder (1920), p. 73.

Sources Cited

BOOKS

Adams, Brooks, Americas Economic Supremacy (New York 1900).
Allen, G. C, British Industries and Their Organization (London 1932).
American Engineering Council, Safety and Production (New York

1928).
Austin, Bertram, and Lloyd, W. F., The Secret of High Wages (New

York 1927).
Bader, L., World Developments in the Cotton Industry (New York

1925).
Bauer, John, and Gold, Nathaniel, Permanent Prosperity (New York

1934)-
Beach, M. Y., The Wealth and Biography of the Wealthy Citizens of

the City of New Yor\ (New York 1855).
Beard, Charles A., A Charter for the Social Sciences (New York 1932) ;

editor, Toward Civilization (New York 1930).
Beard, Charles A., and Beard, Mary, Rise of American Civilization,

1 vols. (New York 1928).
Berle, Adolph A., and Means, Gardiner C, The Modern Corporation

and Private Property (New York 1933).
Beveridge, W. H., Unemployment, A Problem of Industry (London

1912).
Bonn, Moritz J., The Crisis of Capitalism in America (New York 1932).
Brady, Robert A., The nationalization Movement in German Industry

(New York 1933).
Calkins, Clinch, Some Fol\s Won't Wor\ (New York 1929).
Carver, Thomas Nixon, The Present Economic Revolution in the

United States (New York 1924).
Chase, Stuart, Out of the Depression — and After (New York 1932) ;

Prosperity: Fact or Myth (New York 1930); The Economy of

Abundance (New York 1934).
Clark, J. Maurice, Studies in the Economics of Overhead Costs (Chi-
cago 1923).

597

598 Sources Cited

Clark, Victor S., History of Manufactures in the United States, 2 vols.

(Washington 1928).
Clews, Henry, Fifty Years in Wall Street (New York 1908) .
Commons, John R., and Associates, A History of Labour in the United

States, 1 vols. (New York 191 8).
Coombs, Whitney, The Wages of Unskilled Labor in Manufacturing

Industries (New York 1928).
Copley, Frank Barkley, Frederick^ W. Taylor, 2 vols. (New York 1916).
Corey, Lewis, The House of Morgan (New York 1930).
Dacus, J. A., Annals of the Great Strides (Chicago 1877).
Delegates of the Union o£ Socialist Soviet Republics to the International

Congress on the History of Science and Technology, Science at the

Crossroads (London 1931).
De Leon, Daniel, Two Pages from Roman History (New York 1902).
Demant, V. A., This Unemployment (London 1929).
Dennis, Lawrence, Is Capitalism Doomed? (New York 1932).
Denny, Ludwell, America Conquers Britain (New York 1930).
Doane, Robert R., The Measurement of American Wealth (New York

1933)-
Dos Passos, John, The 42nd Parallel (New York 1930).
Douglas, Paul H., Real Wages in the United States, 18^0-1^26 (Boston

1930).
Douglas, Paul H., and Director, Aaron, The Problem of Unemployment

(New York 1931).
DufiFus, R. L., Our Starring Libraries (New York 1934).
Dunn, Robert W., American Foreign Investments (New York 1926).
Edwards, L. P., The Natural History of Revolution (New York 1927).
Encyclopedia of the Social Sciences, 15 vols. (New York 1930-34).
Fish, Carl Russell, The Rise of the Common Man (New York 1927).
Fisher, Irving, The Money Illusion (New York 1928) .
Flynn, John T., Graft in Business (New York 1930).
Foerster, Robert F., and Dietel, Else H., Employee StocI{ Ownership in

the United States (Princeton 1926).
Foster, W. T., and Catchings, Waddill, Profits (Boston 1925).
Eraser, C. E., and Doriot, G. E., Analyzing Our Industries (New York

1932).
Gantt, H. L., Industrial Leadership (New Haven 1916).
Garett, Caret, The American Omen (New York 1928).
Gibson, R. D., Forces Mining and Undermining China (New York

1914).
Giddings, FrankUn H., Democracy and Empire (New York 1901).

Sources Cited 599

Gilman, Nicholas Paine, Profit Sharing (Boston 1889).

Great Britain. Committee on Finance and Industry, Report (Macmil-

lan Report, London 1931); Royal Commission on Unemployment

Insurance, Final Report (London 1932).
Hacker, Louis M., The Farmer is Doomed (New York 1933).
Hacker, Louis M., and Kendrick, Benjamin B., The United States

Since 186^ (New York 1932).
Haider, Carmen, Capital and Labor Under Fascism (New York 1930).
Hammond, J. L. and Hammond, B. B., The Rise of Modern Industry

(London 1925).
Hardman, J. B. S., editor, American Labor Dynamics (New York

1928).

Hensman, Howard, Cecil Rhodes (London 1901).

Hewitt, Abram S., The Mutual Relations Between Labor and Capital

(New York 1878).
Hobson, C. K., The Export of Capital (London 1914).
Hobson, J. A., Imperialism (London 1902) ; The Evolution of Modern

Capitalism (London 1912).
Homan, Paul T., Contemporary Economic Thought (New York 1928).
Huntington, Ellsworth, and Whitney, Leon F., The Builders of America

(New York 1927).
Javits, Benjamin A., and Wood, Charles W., Ma\e Everybody Rich —

Industry's New Goal (New York 1929) .
Jenks, Leland H., Our Cuban Colony, A Study in Sugar (New York

1928).

Jones, Eliot, The Trust Problem in the United States (New York 1922).
Keynes, John Maynard, A Treatise on Money, 1 vols. (London 1930).
King, W. I., The National Income and Its Purchasing Power (New

York 1930) ; Wealth and Income of the People of the United States

(New York 1915).
Kuznets, Simon, National Income, ig2g-^2 (Washington 1934).
Labor Research Association, Labor Fact Boo\^ (New York 1931).
Laidler, H. W., The Concentration of Control in American Industry

(New York 1932).
Lapidus, I., and Ostrovityanov, K., An Outline of Political Economy

(New York 1930).
Lauck, W. Jett, The New Industrial Revolution and Wages (New York

1929).
Lawrence, Joseph Stagg, Wall Street or Washington? (New York

1929).

6oo Sources Cited

Lenin, V. I., Imperialism, the Highest Stage of Capitalism (New York

1933); "Left" Communism, An Infantile Disorder (Detroit 1921).
Leven, Maurice, Income in the Various States (New York 1925).
Lippmann, Walter, The Method of Freedom (New York 1934).
Lough, William H., Business Finance (New York 1922).
Lubin, Isador, T he Absorption of the Unemployed in American Industry

(Washington 1929).
Martin, Everett Dean, The Conflict of the Individual and the Mass in

the Modern World (New York 1932).
Marx, Karl, Capital, 3 vols. (Chicago 1909) ; The Gotha Program (New

York 1922) ; The Eighteenth Brumaire of Louis Bonaparte (Chicago

1913).
Marx, Karl, and Engels, Friedrich, The Communist Manifesto.
Matare, A., WerJ{zeuge, Maschinen und Apparate (Munich 1913).
Millis, Walter, The Martial Spirit (New York 1932).
Mills, Frederick C, Economic Tendencies in the United States (New

York 1932).
Mitchell, Wesley C, History of the Greenbacks (Chicago 1903).
Moody, John, The Truth About the Trusts (New York 1905).
Moody's Manual of Investments (New York 1929—33).
Moon, Parker T., Imperialism and World Politics (New York 1926).
Moulton, H. G., The Financial Organization of Society (Chicago 1924).
Myers, Gustavus, History of the Great American Fortunes, 3 vols.

(Chicago 1909-10).
National Bureau of Economic Research, Recent Economic Changes in

the United States, 2 vols. (New York 1929).
National Industrial Conference Board, Wages in the United States

(New York 1931).
Nearing, Scott, and Freeman, Joseph, Dollar Diplomacy (New York

1925).
Normano, J. F., The Struggle for South America (New York 1931).
Nourse, Edwin G., and Associates, America's Capacity to Produce

(Washington 1934).
Noyes, Alexander D., Forty Years of American Finance (New York

1909).
Nystrom, Paul H., Economics of Consumption (New York 1929).
O'Connor, Harvey, Mellon s Millions (New York 1933).
Parrington, Vernon, The Romantic Revolution in America (New York

1927)-
Pavlovitch, M., The Foundations of Imperialist Policy (London 1922).

Sources Cited 6oi

Perlman, Selig, A Theory of the Labor Movement (New York 1928).
Phelps, Clyde William, The Foreign Expansion of American Banks

(New York 1927).
Phelps, G. M., Our Biggest Customer (New York 1929).
Pierce, Franklin, The Tariff and the Trusts (New York 1907).
Piotrowski, R., Cartels and Trusts (New York 1933).
Polakov, Walter N., The Power Age (New York 1933).
Poor's Directory of Directors (New York 1929-31).
President's Committee on Recent Social Trends, Recent Social Trends

in the United States, 2 vols. (New York 1933).
Rather, Allan W., Is Britain Decadent? (London 1931).
Raushenbush, W. S., and Laidler, H. W., Power Control (New York

1929).
Reynolds, O. R., The Social and Economic Status of College Students

(New York 1927).
Ripley, W. Z., Railroads, Rates and Regulation (New York 1912).
Romero, Matfas, Railways in Mexico (Washington 1882).
Rufener, L. A., Price, Profit and Production: Principles of Economics

(New York 1928).
Salter, Sir Arthur, Recovery, The Second Effort (New York 1932).
Schmidt, Carl T., German Business Cycles (New York 1934).
Schuman, Frederick L., International Politics (New York 1933).
Simons, A. J., Holding Companies (London 1927).
Slichter, Sumner H., Modern Economic Society (New York 1931).
Soule, George, The Useful Art of Economics (New York 1929).
Spahr, W. E., editor. The Economic Foundations of Business, 2 vols.

(New York 1932).
Spengler, Oswald, Man and Technics (New York 1932).
Stoddard, Lothrop, The Rising Tide of Color (New York 1921).
Subcommittee of the Committee on Unemployment and Industrial

Stabilization o£ the National Progressive Conference, J. M. Clark,

chairman. Long Range Planning for the Regularization of Industry

(New York 1932).
Tarbell, Ida, The Life of Elbert H. Gary (New York 1925).
Taussig, F. W., and Joslyn, C. J., American Business Leaders (New

York 1932).
Taylor, F. J., The Frontier in American History (New York 1920).
Taylor, Maurice, The Social Cost of Industrial Insurance (New York

1933)-

6o2 Sources Cited

Thorp, Willard L., and Mitchell, Wesley C, Business Annals (New
York 1927).

Tribolet, Leslie Bennett, International Aspects of Electrical Communis
cations in the Pacific Area (Baltimore 1929).

Tugwell, Rexford Guy, Industry's Coming of Age (New York 1927).

United States. Bureau of Corporations, Report . . . on the Steel Indus-
try (Washington 1911). House of Representatives, Investigation of
Financial and Monetary Concentration in the United States [Money
Trust Investigation], Report (Washington 1913). Senate, Hearings
Before the Senate Committee on Finance, Sales of Foreign Bonds or
Securities (Washington 1932). Department of Agriculture, Yearboo\
of Agriculture (Washington 1932). Department of Commerce,
American Underwriting of Foreign Securities in ig2g (Washington
1930) ; Bureau of the Census, Biennial Census of Manufactures, vari-
ous years; Census of Distribution, ig2g (Washington 1931); Com-
merce Yearboo\, various years; Mines and Quarries, ig2g (Washing-
ton 1931); Statistical Abstract of the United States, various years;
Bureau of Foreign and Domestic Commerce, The Balance of Pay-
ments of the United States in ig2g (Washington 1930). Department
of Labor, Bureau of Labor Statistics, History of Wages in the United
States (Washington 1929). Department of the Interior, Bureau of
Mines, Mineral Resources of the United States (Washington 1929).
Department of the Treasury, Bureau of Internal Revenue, Statistics
of Income, various years. Federal Trade Commission, National
Wealth and Income (Washington 1926). Industrial Commission,
Report and Proceedings (Washington 1900-01).

Usher, A. P., A History of Mechanical Inventions (New York 1929).

Valenstein, L., and Weiss, E. B., Business Under the Recovery Act (New
York 1933).

Vanderlint, Jacob, Money Answers All Things (London 1734).

Varga, E., The Decline of Capitalism (London 1928).

Vauclain, Samuel M., Optimism (Baltimore 1924).

Viallate, Achille, Economic Imperialism and International Relations
During the Last Fifty Years (New York 1923).

Wallace, B. R., and Edminster, L. R., International Control of Raw
Materials (Washington 1930).

Wells, David A., Recent Economic Changes (New York 1889).

Winkler, Max, Foreign Bonds: An Autopsy (New York 1933).

Wister, Owen, Roosevelt, The Story of a Friendship (New York 1930).

World Social Economic Congress, International Unemployment (The
Hague 1931).

Sources Cited 603

PERIODICALS

New York Times, Herald Tribune, World-Telegram, Post, Journal of
Commerce, Wall Street Journal; American Historical Review; Amer-
ican Economic Review; American Mercury; American Bankers Asso-
ciation Journal; American Journal of Sociology; Advertising and
Selling; Annalist; Bankers Magazine; Bulletin of the Taylor Society;
Business WeeJ^; Chambers Journal; Commercial and Financial
Chronicle; Crops and Markets (United States Department of Agri-
culture); Current History; Die Gesellschaft; Economic Journal;
Forbes Magazine; Forum; Guaranty Trust Survey; Harpers; Har-
vard Business Review; International Labour Review (International
Labour Office) ; Iron Age; Journal of Political Economy; Journal of
the American Statistical Association; Kolner Sozialpolitische Viertel-
jahresschrift; Labor Age; Literary Digest; Manufacturing Indus-
tries; Mechanical Engineering; Monthly Labor Review (United
States Department of Labor) ; Nation; Nations Business; New Re-
public; Printers Ink^; Political Science Quarterly; Quarterly Journal
of Economics; Review of Economic Statistics; S. A. E. Journal (So-
ciety of Automotive Engineers) ; Saturday Evening Post; Social Re-
search; Survey Graphic; The Magazine of Business; Today; Welt-
wirtschaftliches Archiv.

Ind

ex

Index

Abbott, Grace, on child labor, 238; un-
employment relief, 250.

Abolitionists and communists, 569.

Abundance: and want, 12; and scarcity,
192; threatens to make capitalist pro-
duction unprofitable, 480 ff. See also
Consumption.

Accidents, industrial, and exploitation of
labor, 238fif; in Germany, 239n.

Adams, Brooks, on imperialism, 424.

Adams, Samuel, as professional revolu-
tionist, 54 in; thrust into obscurity, 542.

Advertising and costs, 165.

Agrarian radicalism: origin, 515; influ-
ence on American labor movement,
553 ff; no longer an influence on labor
movement, 561.

Agricultural Adjustment Administration
and restriction of production, 209. See
also Farmers.

Agricultural machinery: output of, 66;
and rate of profit, 133,

Agriculture: before Civil War, 24; re-
lation to frontier, 49, 515 ff, 554; and
industrial expansion, 49; capitaUst exploi-
tation of, 29, III, 132; prices of prod-
ucts and capitalist prosperity, 66, and
real wages, 82, and mass consumption,
206; restriction of output in, 208, 211,
392n; displacement of labor in, 227;
technical progress neglected, 269; in-
creasing mechanization of, 282; com-
bining of with industry, 286; and im-
perialism, 449. See also Farmers.

Alexander, Magnus W., on labor reserve,
232n.

Allen, G. C, on income, I7in.

Aluminum Company of America: side-
line of, 162; as monopoly, 380, 388;
interlocking directors of, 391; and com-
petition, 406.

American capitalism: evidence of decline,
11; and "new" capitalism, i4fl; de-
velopment and peculiarities of, 24 ff;
relation to European capitalism, 48;
confirms Marxist analysis of capitalist
production, ii3n; becomes monopolist,
373 fl, and imperialist, 416 ff. See
also Capitalism; United States.

American dream: elements of, 51; and
Capitalist decline, 53; crisis of, 515 ff;
and socialism, 538.

American Federation of Labor: and NRA,
14; and industrial peace, 86; on unem-
ployment insurance, 250, 258; estimates
of unemployment, 253; origin, 557;
development, 558; membership, 565;
and independent political action, 568.

American Revolution: expropriates loyal-
ists, 353, 541; and Civil War, 542;
and the coming communist revolution,

541 ff.
American Telephone and Telegraph Com-
pany: assets, 389; interlocking directors,

391; and imperialism, 433.
Anaconda Copper Company: sideline of,

162; and imperialism, 433.
Apparatus, increasing importance of in

production, 276.
Armour, Philip D.: speculation, 358; and

concentration, 375.
Automobile industry: output, 65; and

prosperity, 10, 468; profits, 70.
Autarkie: forgotten by Nazis, 445; lowers

standards of living, 483.
Ayres, Col. Leonard, on cyclical crisis of

1929, 21.

Bagdad Railway and imperialism, 50.
Banks: profits of, 71; aid speculation, 174;
control of industry by, 400 ff; and

607

6o8

Index

finance capital, 399 ff; concentration
among, 401; interlocking directors of,
403; and imperialism, 426, 428, 432 fl.
See also Finance capital; Monopoly cap-
italism.

Beard, Charles A., on American capitalism,
21; capitalist planning, 498; planning
in Soviet Union, 499n; ideals of Amer-
ican dream, 535.

Belgium, and imperialism, 357; colonial
empire, 439.

Bernstein, Eduard, on "organized" capital-
ism, 414.

Bethlehem Steel Corporation: interlocking
directors of, 391; Cuban interests, 423.

Beveridge, W. A., on wages, 105.

Birck, L. V., on Marx' theory of wages,
3i8n; on sources of capital, 348n.

Bolivia: American interests in, 433; ex-
ploitation of labor in, 440.

Bolsheviks: twofold task of, 482n; aware-
ness of purposes and means, 547; and
peculiarities of Russian development,
552n; revolutionary policy of, 570. See
also Soviet Union.

Bonn, M. J., on American prosperity, 151.

Bourgeoisie: and capitalism, 43; and tech-
nological revolution, 262 fl; as revolu-
tionary class, 507 ff; use of dictatorship
by, 506, 541 ff; number and character
of, 560 ff; share of national income,
312, stock ownership, 329, wealth, 350;
changes in composition of, 397 ff ; inter-
mediate bourgeoisie, 312, 329, 350, 560;
lower bourgeoisie, 312, 329, 350, 560;
upper bourgeoisie, 312, 329, 350, 560.
See also Middle class; Capitalism.

Brazil, coffee control, 208.

Brinkmann, Carl, on alternatives before
civilization, 171.

Building construction: after Civil War,
26; and prosperity, 64ff, 75, 107, 472;
and workers' needs, 473.

Business cycle: inherent in capitalist pro-
duction, 13; causes of, i93ff; control
of, 20; and "organized" capitalism,
414; under capitalist decline, 458 ff;
under state capitalism, 500. See also
Prosperity; Depression.

Brady, Robert A., on industrial accidents
in Germany, 23 9n.

Calkins, Clinch, on unemployment, 236 ff.

Caesarism: and imperialism, 488; fascism
as form of, 514.

Canada: American investments in 443.

Capital: defined, 346; and profits, 95;
superabundance of, 160; increase of cap-
ital claims, 288; and labor displace-
ment, 291; growth of, and stockholders,
325; and savings, 343n; sources of,
346ff. See also Capitalism; Profit, rate
of.

Capital, accumulation of: defined, iii;
during and after Civil War, 25ff ; during
and after World War, 37; decisive in
capitalist production, 44, 95, 108, iii,
143; contradictions of, 113 ff; social
character of, 347; and expansion, 74;
and consumption, 199 ff; determines
prosperity, 63, 468; and railroads, 271;
and industrial concentration, 373 If;
382; undermines capitalist production,
139; and decline of capitalism, 138,
477ff; tends to make capitalist produc-
tion unprofitable, 477 ff. See also Cap-
ital; Profit, rate of.

Capital, export of: nature and objectives,
437; and capitalist expansion, 64; in
economically backward countries, 46; re-
places frontier, 75; and rate of profit,
136; and railroad construction, 271;
basis of imperialism, 418 ff; and inner
American imperialism, 421; and Amer-
ican imperialism, 423 ff; relation to ex-
port of goods, 447; and American pros-
perity, 67; limitations of, as factor in
prosperity, 485.

Capital goods: basic in capitalist produc-
tion, 45, 64, 95, 180, 198; output of
during and after Civil War, 25 ff; be-
fore World War, 36; as factor in pros-
perity, 66, 74, 151, 466 ff; and rate of
profit, 131; demand for, 203, 271; at-
tempts to stimulate output of, 204; out-
put of and workers employed, 197; and
displacement of labor, 244; and wealth,

Index

609

346; and credit, 40011; and long-time
factors of expansion, 31 ff, 49ff; and
imperialism, 418 ff; under capitalist de-
cline, 470 ff; influence of, on consump-
tion and capitalist decline, i93ff. See
also Consumption goods; Capital, ac-
cumulation of.

Capitalism: as revolutionary force, 42;
markets and profits, 43; cyclical break-
downs of, 12; expansion, 44, 57; limi-
tations on expansion, 45, 138; upswing
of, and labor absorption, 292 ff; tech-
nology and decline, 294; and colonial
trade, 353; and wealth, 352 ff; stages
of development, 397; becomes imperial-
ist, 417 ff; crisis of, and class struggle,
457 ff; threatened by world market,
465; reacts against abundance to pro-
tect profits, 482; resorts to state cap-
italism and fascism, 489 ff. See also
Bourgeoisie; Commercial capitalism; In-
dustrial capitalism. Monopoly capital-
ism.

Carnegie, Andrew, and Homestead Strike,
29; sells company, 360; as industrial
capitalist, 375.

Carnegie Steel Company: crushes labor,
362; and concentration, 374.

Cartels: restriction of output, 208; and
NRA, 391, 409; limitations of, 405; in-
ternational, 443. See also Combination.

Carver, Thomas Nixon, on new capital-
ism, 18; on Soviet Union, 19.

Catchings, Waddill, on consumer democ-
racy, i65n.

Chaco War, imperialist aspects of, 433.

Chain stores: profits, 71; wages, 85; and
competition, 167 ff; sales, 390.

Chase National Bank: control over in-
dustry, 403; and export of capital, 428.

Chase, Stuart, on American capitalism,
21; on planning, 502; on capitalism
and communism, 549.

Child labor: in depression, 87; and un-
employment, 238.

China: railroad construction, 50; and
surplus population, 273; American in-
terests in, 423; struggle over loans to,

427; foreign plundering of, 435; Amer-
ican investments in, 443.

Civil War: and American capitalism 24;
as revolutionary struggle, 43; and dic-
tatorship, 542.

Civilian Conservation Corps and forced
labor, 473.

Civil Works Administration and low
wages, 97.

Claflin, John B., on J. P. Morgan, 32.

Clark, John Bates, on fixed laws of distri-
bution, 305.

Clark, J. M., on overhead costs, i28n,
137; on stable prices, 2i2n.

Classes: interlocked with economic forces,
457; and technical-economic changes,
281; divisions in U. S., 560 ff; fluidity
of, and American labor movement, 554;
American peculiarities of abolished, 559;
and American dream, 515 ff; strati-
fication of, 532; and socialism, 539. See
also Class struggle.

Class struggle: nature of, 156; sectional
forms in United States, 421; intensified
by monopoly capitalism and imperial-
ism, 453; and the crisis of capitalism,
106, 481; as aspect of state capitalism
and fascism, 497, 511; revolutionary
significance of, 507 ff. See also Glasses;
Struggle for power.

Clay, Henry, on wages, 105.

Clerical workers: growth, 281; salaries,
84, 88; mechanization and displace-
ment, 295; unemployment among, 249;
stock ownership, 329, wealth, 350,
number, 560.

Cleveland, President Grover, and Pullman
strike, 29.

Colm, G., on Papen Plan, 54n, i9on.

Colonies: in early capitalist development,
352; exports to, 46; American acquisi-
tion of, 424; and imperialism, 418 ff;
distribution of, 439; revolt in, and
world revolution, 488. See also Impe-
rialism.

Combination: defined, 373; development
and significance, 373 ff; profits, 72;
and speculation, 178; efficiency of, 377;
Qnancial control over, 378 ff; inter-

6io

Index

locking directors, 391; and finance cap-
ital, 395 ff; and competition, 405 ff;
and imperialism, 433!!. See also Cartels;
Concentration; Monopoly capitalism.

Comite des Forges, acquires German in-
terests in Alsace-Lorraine, 363.

Commercial capitalism: defined, 397; in
the United States, 24; influence on
technological revolution, 262; in North
American colonies, 353; as stage of
capitalism, 397. See also Industrial cap-
italism; Monopoly capitalism.

Commission on Unemployment Insurance
(British), on permanent unemployment,
256.

Commons, John R., on decline of trade
unionism, 566.

Communism: economy of, 482; its ideal
of education as enlightenment, 530;
recognizes significance of national pe-
culiarities, 569; and developing class
action, 572; objectives, 573. See also
Socialism; Marxism; Proletarian revo-
lution.

Communist Party: organization of, 568;
strikes and suppression of, 78; and un-
employed demonstrations, 25 1 ; need
for, 510; unifies working-class struggle,
566.

Company unions: under NRA, 100, 496.

Competition: aspect of capitalist produc-
tion, 60; and composition of capital,
129; and excess capacity, 160 ff; limita-
tions of, 211; and concentration, 375;
and combination, 377; and small-scale
industry, 407; new forms of, under
monopoly capitalism, 409; and imperial-
ism, 442; in depression and recovery,
461. See also Cartels; Monopoly; Excess
capacity.

Composition of capital: defined, 112; and
accumulation of capital, 113 ff; and
the rate of profit, 118 ff; and displace-
ment of labor, 270; earlier and later
stages of, 267; under capitalist decline,
472. See also Capital, accumulation of;
Profit, rate of; Excess capacity.

Compton, Karl T., on science and jobs,
470.

Concentration: defined, 374; in depres-
sion, 30; and efficiency, 375; growth
and significance of, 373 ff.

Consumption: during and after Civil
War, 25 ff; decrease during World War,
38; in relation to prosperity, 39 ff, 147
ff; and excess capacity, 128; and capi-
talist production, 151 ff; class distribu-
tion of, 156; and cyclical depression,
180 ff; and capitalist decline, 194 ff,
480 ff; and income inequality, 316 ff;
and imperialism, 428, 445; socializa-
tion of necessary, 481; and abolition of
capitalism, 490; possibilities of, 49on.
See also Excess capacity; Abundance.

Consumption goods: increase less than
capital goods, 34; output of, 153; re-
lation to capital goods and accumula-
tion, 193 ff. See also Capital goods;
Consumption.

Cooke, Jay: financiering, 358; plunders
railroads, 374.

Coolidge, Calvin, on prosperity, 303.

Cooper, James Fenimore, on landholding,
353.

Cort, Henry, and ironmaking, 355.

Credit: source of capital, 347; as aid to
speculation, 174; social nature of, 399;
and capital goods, 40on.

Cuba: loans from American bankers, 74;
American interests in, 423, 443; and
Spanish- American War, 424; "freed" of
Piatt Amendment, 446n.

Culture: in bourgeois revolution, 43;
threatened by decline of capitalism, 537
ff; bourgeois and proletarian culture
contrasted, 508.

Cutler, Addison T., on small farmers and
government aid, 393n.

Davidson, Philip G., on Samuel Adams
and Thomas Paine as professional rev-
olutionists, 54 in.

Debs' Rebellion, 556.

Debt: increase and significance of, 290;
in depression, 463.

Deflation, effects of, 66. See also Inflation.

Index

6ii

De Leon, Daniel, on inevitability of social-
ism, 505n; on differences between bour-
geoisie and proletariat as revolutionary
classes, soyn.
Democracy: origin and character of, 517;
and capitalism, 43; limitations of, 44;
in the United States, 48, 51, 515 if;
reaction against, by monopoly capital-
ism and imperialism, 446; limited by
state capitalism, 496; suppressed by
fascism, 512; and American dream, 521
ff; capitalist reaction against, 522; and
socialism, 539; influence on American
labor movement, 554. See also Revolu-
tion; Proletariat, dictatorship of.
Dennis, Lawrence, on falling interest rate,

215.
Depression: recurrence of, 13, 27; effects
of, 12, 30, 247; causes of, 18 ff; and
rate of profit, 124; and debt, 290;
changes in character of, 460 ff; deep-
ened and prolonged by imperialism,
465n. See also Prosperity; Business
cycle.
Diaz, Porfirio, political power and wealth

of, 358.
Dickinson, H. C, on income distribution,

3o6n.
Displacement of labor: in 1920-29, 228;
change from relative to absolute dis-
placement, 23ofT; relation of, to pro-
ductivity of labor, 225ff, 244; in agri-
culture, 227; among clerical workers,
295; under capitalist decline, 479ff, See
also Productivity of labor; Unemploy-
ment.
Distribution costs, increase of, 70, 164.
Dividends: during and after Civil War,
25 ff; increase of, 73; in depression,
88 ff; movement of, i53ff; distribution
of, 327 ff.
Doane, Robert R., on rate of profit, I24n;
on interest, dividends, and wages, I54n;
on distribution of consumption, I58n;
on wealth distribution, 342n, 350, 35in.
Douglas, Paul H., on technological un-
employment, 233; unemployment esti-
mates of, 242, 273n.

Education: ideal of, 528; old revolution-
ary significance of, 529; capitalist re-
action against, 529; degraded by fas-
cism, 531; communist attitude to, 530;
and socialism, 539.
Electric Bond and Share Company: fac-
tor in combination, 389; Cuban interests
of> 435; other foreign interests, and
imperialism, 443.
Electric power industry: growth of, 65;
and prosperity, 75, 107; concentration
in, 389.
Electrical machinery industry, growth of,

65.
Employee stock ownership, character and

amount of, 330 ff.
Equality: origin of concept of, 523; capi-
talist reaction against, 524; suppressed
by fascism, 525; and socialism, 539.
Excess capacity: causes and significance of,
120 ff; extent of, 85, 128, 49on; in-
fluence on rate of profit, 122; and
state capitalism, 140; aggravates compe-
tition, 160 ff; and restriction of pro-
duction, 213; as factor in imperialism,
429. See also Composition of capital;
Profit, rate of; Capital, accumulation of;
Competition; Consumption.
Exchange: control of, 139; consumption
an aspect of, 147; secondary to produc-
tion, 191, 194.
Exports: distribution of, 67; in upswing
of capitalism, 46 ff; and American
prosperity, 67; as means of checking
fall in rate of profit, 135; American
share of, 154; and imperialism, 416 ff.
See also Foreign trade; Imperialism.

Fairchild, Mildred, on employment and
wages in Soviet Union, 24 7n.

Farmers: during and after Civil War,
25; revolts of, -50; participation of in
prosperity, 38 ff; consumption by, 158;
and surplus population, 294, 47in; in-
come of, 34, 308 ff; capitalist exploita-
tion of, 132; capital returns and debt,
315; tenancy, 315; wealth of, 350; and
American dream, 517 ff; and American

6l2

Index

labor movement, 553 ff; number and
class character of, 560. See also Agri-
culture.

Fascism: defined, 511; nature and objec-
tives, 512 if; control of labor, 102; re-
stricts production, 209; and small-scale
industry, 212; income distribution
under, 305, 321; and imperialism, 445;
in depression, 464; neglects housing for
workers, 474; lowers living standards
and prepares for war, 483; against re-
forms, 505; and state capitalism, 511;
rejects bourgeois revolutionary ideals,
521 fl; attitude toward dictatorship con-
trasted with communist attitude, 539;
struggle against, 511; as form of
Caesarism, 514. See also State capitalism.

Federal Emergency Relief Administration,
extent of relief of, 252.

Federal Trade Commission: on stock own-
ership among officers and directors,
335n; on wealth distribution, 341.

Feudalism: and capitalism, 43; influence
of its absence on American develop-
ment, 48; and commercial revolution,
262; forms of wealth under, 352.

Field, Marshall, character of fortune of,
361.

Filene, E. A., on new capitalism, 16; on
abolition of poverty, 149.

Finance capital: defined, 400; character
and development of, 395 ff; profits of,
71, 73, 412; control over railroads by,
374n; control over industry by, 378 ff;
and stockholders, 326n; its basis in
socialization of production, 404; and
imperialism, 418 if; in relation to
large-scale industry, 433; and state cap-
italism, 494; and fascism, 512. See
also Banks; Monopoly capitalism; Im-
perialism.

Fisher, A. G. B., on wage differentials,
84n.

Fisher, Irving, on cyclical crisis of 1929,
21, 174; on money and prices as
causes of cyclical crises, 185 ff.

Fiske, Haley, on new capitalism, 16.

Fixed costs. See Overhead costs.

Flanders, Ralph E., on investment, 2i3n.

Ford, Henry, on unemployment, 236, 251;
as industrial capitalist, 398.

Ford Motor Company: and displacement
of labor, 225; and unemployment, 236;
and competition, 405.

Foreign-born workers: and minimum
wages, 97; relief among, 250; and
monopoly profits, 422n; permit older
Americans to rise, 527; and American
labor movement, 558; as factor in class
fluidity, 559n. See also Immigration;
Surplus population.

Foreign investment: increase of, 74; world
amount and income of, 419; growth of
American, 424, 427, 428; and raw
materials, 439; distribution of Ameri-
can, 443; British and American income
from, 448; and imperialism, 416 ff.
See also Imperialism.

Foreign trade: influence on costs, 106; and
rate of profit, 135, 4i7n; in American
development, 27 8n; and imperialism,
418 ff. See also Exports; Imperialism.

Foster, W. T., on consumer democracy,
i65n.

France: state aid to industry in, 55; re-
striction of production in, 209; and
capitalist wealth, 356; imperialism of,
357, 419, 428; sells German proper-
ties in Alsace-Lorraine, 363; colonial
empire of, 439.

Frick, Henry C, and Homestead Strike,
29.

Frontier, the: influence of on American
capitalism, 31 if; and individualism,
49, 520; influence of on agricultural ex-
pansion, 49; replaced by other factors,
75; and inner American imperialism,
421; and American dream, 515 if; new
and old frontier contrasted, 518; influ-
ence on agrarian radicalism, 553; and
American labor movement, 554.

Gantt, H. L., on supervisory employees,

334-
Gaskill, N. B., on NRA, 14.
General Electric Company: sidelines of,

162; power of, 388; interlocking direc-

Index

tors of, 391, and imperialism, 433;
foreign interests of, 443, 447.
General Motors: profits of, 96; sidelines
of, 162; interlocking directors of, 391;
and competition, 405; and imperialism,
433-

General strike: in Seattle and Winnipeg,
78; in San Francisco, 566.

Germany: state aid to industry in, 55; in-
dustrial expansion in, 64; labor laws
in, 102; wages in, 104; interest rate
reduction in, i9on; capital goods out-
put in, 204; industrial accidents in,
239n; unemployment in, 246; unem-
ployment relief in, 257; aristocracy and
capitalism in, 356; foreign investments
and imperialism of, 419, 428; fascism
in aggravates economic crisis, 464;
business cycles and state capitalism in,
500.

Giddings, Franklin H., on imperialism
and progress, 421.

Gilman, Nathaniel P., on profit sharing
and employee stock ownership, 332 if.

Gomez, Juan Vicente, political power and
wealth of, 358.

Gompers, Samuel, on high wages, 77;
conception of unionism, 558.

Gould, Jay, as strikebreaker, 29; source
of wealth of, 359, 374.

Government intervention in industry: ex-
tent and aim of, 11, 13, 94; and de-
velopment of capitalism, 48; and decline
of capitalism, 62, 489 ff. See also State
capitalism; Fascism.

Grace, William R., and American imperial-
ism, 361.

Great Britain: state aid to industry in,
55; industrial expansion in, 64; exports
of, 67; Corn Law repeal in, 82n; re-
striction of production in, 209; unem-
ployment and relief in, 244 ff, 257;
technological revolution in, 264 ff; and
capitalist wealth, 355 ff; aristocracy and
capitalism in, 356; imperialism of, 357,
417 ff; amalgamation movement in,
38in; foreign investments of, 419, 428,
448; colonial empire of, 439; labor
movement in, 551.

615

Green, William, on NRA, 14; on wage
cuts, 87; on coal code, 101; on con-
sumption, 205; on unemployment and
relief, 250, 252; browbeaten by Gen.
Hugh Johnson, 497.

Guggenheim interests, in Latin America,
426; and imperialism, 433.

Hacker, Louis M., on farmers, 29n; on
agriculture and imperialism, 449n.

Harriman, Edward H., control over rail-
roads by, 374n.

Harriman, H. L, on NRA, 14; favors
open shop, 100.

Hay, W. W., on overproduction, i84n.

Haymarket tragedy, 29.

Hazlitt, Henry, on unemployment in
Soviet Union, 273n.

Heinrich, A. W., on industrial accidents,
240.

Hewitt, Abram S., on employee stock
ownership and philanthropy, 333.

Hilferding, Rudolf, on "organized" capi-
talism, 414.

Hitler, Adolf, on war, 534.

Hobson, John A., on income and cyclical
fluctuations, 320; on British imperial-
ism, 420; on imperialist parisitism,
447n; on international aspects of state
capitalism, 495.

Holding companies: profits of, 71, 414;
subsidiaries of, 90; as method of combi-
nation, 379; opposition to labor of,
4i2n. See also Combination.

Holland: colonial exploitation by, 356;
colonial empire of, 439.

Hoover, Herbert, on industrial democracy,
18; on business stabilization, 86; on
unemployment insurance, 249.

Hours of work: under NRA, 97, 477; and
industrial revolution, 270.

Huntington, Ellsworth, on biological basis
of inequality, 524n.

Ickes, Harold L., Secretary of the Inte-
rior, on New Era, 303.

6i4

Immigration, and unemployment, 242.
See also Foreign-born workers.

Imperialism: nature and development of,
416 fl; appearance of, 32; and railroad
construction, 50; and World War, 47;
development of, 53; and prosperity, 67,
107; and monopoly capitalism, 136; and
world market, 417; and foreign trade,
418 ff; development in the United States
of, 421 ff; and Spanish- American War,
424; as stage of capitalism, 434; and
decline of capitalism, 47, 432, 484 ff;
and highly developed countries, 442;
promotes war, 444; limitations of, 444;
as form of Caesarism, 488; and state
capitalism, 495; concepts of racial in-
equality of, 524; and proletarian revo-
lution, 552. See also Monopoly capital-
ism; Finance capital; Foreign invest-
ment; Capital, export of.

Income: theory and distribution of, 305
ff; inequality of, 28, 34, 38, 306; of
average family, 85; class distribution of,
312 ff; inequality of and capitalist pro-
duction, 317 ff; as factor in cyclical
fluctuations, 319; and the decline of
capitalism, 320; and imperialism, 448.

India: surplus populatir.n in, 273; handi-
craft economy of disrupted, 355; strug-
gles for independence, 488.

Individualism: in relation to capitalism,
43; in the United States, 48; and fron-
tier, 49, 517; capitalist reaction against,
519; suppressed by fascism, 520.

Industrial capitalism: defined, 397; in
United States, 24; and wealth, 355; as
a stage of capitalism, 397; transforms
American dream, 518 ff. See also Com-
mercial capitalism; Monopoly capitalism.

Industrial unionism: as aspect of social-
ism, 505n; and unorganized workers,
566; and Socialist Labor party, 568.

Industrial Workers of the World: strikes
and suppression of, 36, 78; contribu-
tion to American movement of, 568.

Inflation: resort to, 13, 463; and wages,
98; wipes out middle-class wealth, 362;
limits and dangers of, 463.

Injunctions, in post-war period, 78.

Index

Installment selling and consumption, 168.

Insurance, labor's share in, 344.

Interest: corporate, 73, 88 ff, 153, 154;
and investment and the rate of profit,
188.

Investment banking: development of, 400;
and accumulation of capital, 74. See
also Banks; Finance capital.

Investment income: profits as source of,
73; and consuming income, 75; in pros-
perity and depression, 71, 161, 188.

Italy: state aid to industry in, 65; loans
from American bankers to, 74; fascism
and wage cuts in, 103; control of in-
dustry in, 209; unemployment in, 246;
colonial empire of, 439.

Japan: foreign investments of, 428; colo-
nial empire of, 439.

Javits, Benjamin, on making everybody
rich, 17.

/efferson, Thomas, on right to revolt, 520;
glorifies Shays* Rebellion, 542.

Johnson, Senator Hiram, on loans and
State Department, 436.

Johnson, General Hugh, NRA Adminis-
trator, on NRA, 14; on open shop, 100;
on strikes, loi; on purchasing power,
147; on unemployment, 254; browbeats
William Green, 497.

Jordan, Virgil, on spread-work movement,
249.

Keith, Minor C, and American imperial-
ism, 361.

Kendrick, Benjamin B., on farmers, 29n.

Keynes, John Maynard, on monetary as-
pects of cyclical crises, 187 ff; on rate
of profit, 189, 214; on speculation,
189; on capital goods and investment,
189 ff.

King, Willford I., on income, 68n, 89;
on wages, 105; on economics as a
science, io5n.

Kingsbury, Susan M., on employment and
wages in the Soviet Union, 247n.

Index

615

Knights of Labor: boycotts by, 376; class
unionism of, 556; collapse of, 557.

Krueger, Ivar, and international monop-
oly, 433-

Kuczynski, G., on relative wages in Ger-
many, 83n.

Labor: in prosperity, 40, 56 fl; division
of, 264, 286; post-war attitude to, 77;
change in character of, under influence
of machinery, 284 if; under NRA, 94
ff, 496; income of, 307 fl; stock owner-
ship of, 328 ff; savings of, 343; in-
surance holdings of, 344; exploitation
of, 95; anti-trust laws used against,
379n; and holding companies, 41 2n;
under decline of capitalism, 47, 471 ff;
and imperialism, 440; and ideals of
American dream, 520 ff. See also Labor
movement; Unemployment; Trade un-
ions.

Labor banks and trade-union capitalism,
18, 565; and workers' savings, 343.

Labor movement: American and Euro-
pean contrasted, 551; development and
peculiarities of American, 552 if; Rus-
sian, 552n; and agrarian democracy,
553; changing character and the revo-
lutionary perspectives of, 567 ff. See
also Labor; Strikes; Struggle for power.

Labor Party, significance and limitations
of, 566.

Lamont, Thomas W., on spheres of in-
fluence, 427.

Landholding as form of wealth, 352; de-
creasing importance of, 354.

Lapidus, L, on fixed capital and rate of
profit, i2in.

Large-scale industry: growth of, 30; and
accumulation of capital, iii; and com-
position of capital, 112; overhead costs
of, 127; and the rate of profit, 133 ff;
development of, 373 ff; competition in,
405; and finance capital, 395 ff; and
imperialism, 416 if. See also Concentra-
tion; Combination; Small-scale industry.

Latin America: United States policy to-
ward, 423; foreign loans to, 434; as

colonial basis of American imperialism,
440; American investments in, 443;
American imperialism upholds reaction
in, 446.

League of Nations and peace, 444.

Lenin, V. L, on finance capital, 399n; on
monopoly competition, 405n; on mo-
nopoly profits and labor, 42on; on
privileged workers, 422n; on imperialism
as a stage of capitalism, 43 4n; on cap-
italist decline and decay, 485; on ne-
cessity of struggle against capitalism,
506; on industrial unions, 5o6n; on
significance of national peculiarities,
569.

Leopold II, King, and Congo massacres,
357.

Leven, Maurice, on income, 312.

Lewis, John L., and coal code, loi;
signs agreement with mine operators,
loin.

Liberty: origin of concept of, 520; cap-
italist reaction against, 521; suppressed
by fascism, 521; and socialism, 539.

Limitation of output: as element of mo-
nopoly and capitalist decline, 45; in
manufacture of bottles, 275n; urged by
manufacturer, 169; always practiced by
capitalism, 208 ff; encouraged by NRA,
state capitalism, and fascism, 210, 494 if;
in agriculture, 392n; and the crisis of
capitalism, 480 if. See also Consump-
tion; Excess capacity; Profit, rate of.

Lippmann, Walter, on freedom and
democracy, 52on.

Lodge, Henry Cabot, on American ex-
pansion, 424.

Luxury goods and production, 170.

Machado, Gerardo, and American con-
nections, 435.

Management: separation of ownership
from, 31, 192, 395 ff; increasing mech-
anization of, 285; Taylorism and, 334;
projects new social order, 335; and
socialism, 338,

Manufactures, concentration in, 387 ff.

6i6

Index

Martin, Robert F., on raw materials,
iSsn.

Marx, Karl: on American capitalism, ii3n;
on realization of surplus value, iign;
on utilization of fixed capital, i2on; on
fixed costs, I2in; on rate of profit, I33n,
2i4n, 216; on crises, i82n; on overpro-
duction, 184; on capitalist production,
i92n; on reserve army of labor, 232n; on
surplus population, 255 ff; on theory of
wages, 3i8n; on technology, 26in; on
changes in capitalist ownership, 324n;
on significance of separation of owner-
ship and management, 338; on source of
capitalist wealth, 347n; on concentration
of industry, 382n; on middle class,
386n; on finance capital, 399n; on con-
centration and competition, 405n; on
foreign trade and rate of profit, 4i7n;
on overcoming cyclical crises, 461 n;
on capitalist and socialist production,
502n; on proletarian revolution, 509;
on variations in social development, 550;
on American class relations, 554.

Marxism: economic theories of, and Amer-
ican capitalism, ii3n; tactics of, 510;
scientific awareness of means and pur-
poses of, 547; as social engineering,
547n; and American mind, 549; and
American labor movement, 550 ff;
theories and tactics forged by, 551;
Americanization of, 571; approach of to
peculiar American problems, 573. See
also Proletarian revolution; Labor move-
ment.

Mass consumption: relation to prosperity
of> I5> 39' 56; and composition of
capital, 117; and production, 194; con-
ditioning factors of, 205; and decline
of capitalism, 207. See also Consump-
tion; Prosperity.

Mass well-being: assumed ideal of new
capitalism, 15 fif; in prosperity and de-
pression, 25 fl; labor struggle for, 525;
capitalist reaction against, 526; sup-
pressed by fascism, 526; and socialism,
539.

Matthews, A. M., on volume of produc-
tion, 63n.

Means, Gardiner C, on separations of
ownership and control, 395.

Meiggs, Henry, and American imperial-
ism, 361.

Mellen, Charles S„ on Morgan control,

397-

Mellon, Andrew W., on prosperity, 16; on
speculation, 174; interests of, 396, 406;
and Barco concession, 435.

Mellon interests: threat to, 406; and im-
perialism, 433; in Colombia, 435; and
aluminum world trust, 438.

Mergers and speculation, 178.

Mexico and surplus population, 273;
American investments in, 443.

Middle class: changes and growth of,
281, 314; income of, 308 ff; stock
ownership of, 329 ff; wealth of, 350;
Marxist conception of, 386n; and the
market, 4ion; and imperialism, 420;
old economic significance of destroyed,
410; and American dream, 517 ff; and
American labor movement, 557; num-
ber and character of, 560 ff; and revo-
lution, 564. See also Bourgeoisie.

Miller, Spencer, on new capitalism, 18.

Millikan, Robert A., on science and jobs,
470.

Mills, Frederick C, on productivity of
labor, 38n; on building construction,
65n; on profits, 7on; on costs, ii4n.

Mining and composition of capital, 116;
accident rates in, 239; concentration in,

389.

Misery, increasing, and industrial revo-
lution, 269; and the decline of capital-
ism, 105, 486; new aspects of, 487.
See also Surplus population.

Mitchell, Charles E., on prosperity, 16.

Mitchell, Wesley C, on displacement of
workers, 231.

Money and cyclical crises, 185, 187.

Monopoly: as element of economic de-
cline, 30, 45; and composition of cap-
ital, 134; strengthened by NRA, 392
ff; and competition, 404 ff; and rate of
profit, 134, 411; limits of, 411; as
"organization" of capitalism, 414; and
imperialism, 430; in economically

Index

617

backward countries, 432; and interna-
tional competition, 442; and stagnation
and decay, 448; prolongs depression
and hampers recovery, 462 ff. See also
Monopoly capitalism; Finance capital.

Monopoly capitalism : defined, 398; as stage
of capitalism, 398 ff ; and state interven-
tion, 37, 492; and state capitalism, 394,
494; as objective abolition of capitalist
production, 404; and competition under,
405 if; contradictions of, 415; and im-
perialism, 419 ff; and exhaustion of
long-time factors of expansion, 431; as
reaction against democracy, 446; its
basis in socialization of production, 449;
and fascism, 513. See also Finance cap-
ital; Imperialism.

Monroe Doctrine: transformed, 423; im-
perialist interpretation of, 440; and Cuba,
446n.

Moody, John, on unemployment, 23 2n.

Moorhouse, H. W., on leisure as cause of
unemployment, 236.

Morgan, Arthur E., on educational op-
portunities, 53on.

Morgan, J. Pierpont: power of and cycles,
32; and Theodore Roosevelt, 37n; on
rights of property, 362; control of over
railroads, 374n; control of over indus-
try, 397-

Morgan, House of; financial control of
over industry, 376 ff, 388, 402; electric
power interests of, 389; associated with
Pacific cable project, 424; Chinese loans
of, 427; and export of capital, 428; for-
eign bond issues of, 433n; Colombian
interests of, 435.

Morris, A. J., on purchasing power, 148.

Moving picture industry and prosperity,
107.

Murray, Philip, labor leader, and President
Franklin D, Roosevelt, 100.

Mussolini, Benito, on war, 535.

Collective bargaining and NRA, 99.

National Bituminous Industry Board,

labor representation on, 100.
National City Bank, on high wages, 77;

on wage cuts, 87; control of over in-
dustry, 378, 403; and export of capital,
428; foreign bond issues of, 433n; Cu-
ban loans of, 435.

National Industrial Recovery Act, see
NRA.

National Industrial Recovery Administra-
tion, see NRA.

National Labor Board and strikes, 98,
100.

Natural resources: exploitation of, 358;
concentration of ownership in, 389.

Negro and minimum wages, 97; and un-
employment, 237; relief for, 250; ex-
ploitation of, 422; threatened by Jim
Crowism and lynching, 523; struggle
of, 572.

"New" Capitalism: after depression of
1873-79, 15; and industrial democracy,
18; and high wages and profits, 61; and
"control" of business cycle, 223; and
wealth distribution, 342; and American
unionism, 564.

NRA: ballyhoo for, i4ff; and attitude of
labor leaders, 98; purposes of, 13;
459; character of, 6 iff; expenditures of,
54; limitations of, 103; effect of, 96ff;
restriction of production by, 209 ff; and
cartels, 409; strengthens monopoly, 391;
and capital goods output, 204; restricts
introduction of new machinery, 293;
and consumption, 195; and closed shop,
99; and prices, 187; and hours of labor,
477; acts against labor, looff, 496; and
imperialism, 445; and state capitalism,
494ff ; as expression of decline of capital-
ism, 140. See also State capitalism.

Nourse, Edwin G., on capacity to produce,
49on.

Open Door doctrine, changes in, 427.

Opportunity: origin of, 526; capitalist
reaction against, 527; suppressed by
fascism, 528; and socialism, 539.

Ostrovityanov, K., on fixed capital and
rate of profit, I2in.

Overcapitalization and rate of profit, 126.

Overhead costs and profits, 121; in large-

6i8

Index

scale industry, 127. See also Excess
capacity; Profit, rate of.

Overproduction, iSafl; and restriction of
output, 208. See also Business cycle;
Excess capacity.

Ownership: under capitalist production,
192; separation of from management
and control, 323ff, 395ff; distribution
of, 329ff; and wealth, 350; irresponsi-
bility of, 364; and imperialism, 433, 447.
See also Property.

Panama Canal: United States opposes
French building, 423; and American
imperialism, 426.

Parasitism: and growth of debt, 290; and
imperialism, 447.

Pareto, Vilfredo, on income distribution,

305-

Paris Commune, significance of, 551.

Paine, Thomas, as professional revolu-
tionist, 54 in.

Peace: as bourgeois ideal, 533; capitalist
reaction against, 534; repudiated by fas-
cism, 534; and League of Nations, 444;
and socialism, 539.

Perkins, Frances, Secretary of Labor, on
NRA, 14; on unemployment reserves,
259.

Picketing, injunctions against, 78.

Pigou, A. C, on wages, 105.

Piotrowski, R., on monopoly competition,
405n.

Planning, economic: under capitalism, 205,
499 ff; under socialism, 495n, 504; in
Soviet Union, 499n, 504; and abolition
of capitalism, 501; forms of, 502ff.
See also State capitalism.

Portugal: imperialist alliance with Great
Britain, 418; colonial empire of, 439.

Powell, Webster, on small farmers and
government aid, 393n.

Prices: during and after Civil War, 25ff, 33;
fixing of, 104, 392; and cyclical crises,
i85ff; and restriction of production, 211.

Primitive accumulation: in Europe, 352;
in United States after Civil War, 358.

Production: during and after Civil War,
2$(i', fall in rate of increase of, 33,
152; and consumption, 45, 75, I47ff;
and displacement of labor, 96, 242^,
293. See also Consumption.

Productivity of labor: increase in, 27fl, 65,
96, 253; and wages, 28, 81, 85; not
controlled, 104; and composition of
capital, 116; and rate of profit, 118; re-
lation of to production and prices, 232,
272; displacement of labor by and un-
employment, 225ff, 242fT; and rate of
growth of production, 272; possibilities,
293; and crisis of capitalism, 479^. See
also Unemployment; Production; Wages.

Professional workers: growth of, 281; sal-
aries of, 88; unemployment among,
249; and surplus population, 296; in-
come of, 313; functional approach to,
561.

Profit, rate of: causes and results, I30ff;
relation of to interest rate and capital
goods output, 189; in small-scale in-
dustry, 122; and productivity of labor,
119; and overhead costs, 127; efforts
to check fall in, 13 iff; and monopoly,
134, 408, 411; and foreign trade, 135,
4i7n; and export of capital and im-
perialism, 4i8ff; under capitalist de-
cline, 477ff. See also Capital, accumula-
tion of; Excess capacity; Competition;
Profits.

Profits: defined, iii; during and after
Civil War, 25ff; during World War,
37; and prosperity, 39, 56, 63 ff, 107;
and "new" capitalism, 61; government
aid to, 62; and consumption, 66;
amount and distribution of, 67ff; re-
investment of, 74; increase of, 82, 96;
and wages, 92, 11 iff; and excess ca-
pacity, 128; monopoly, 134 ff; and
speculative, i72ff; and prices, 186; and
cyclical fluctuations, 319; concentration
in distribution of, 376; industrial profits
subordinated to financial and specula-
tive profits, 412 ff; and imperialism,
4i8ff, 445; in colonies, 440; abolition
of threatened by capitalist production

Index

619

itself, i96ff, 477ff; and limitation of
output 480; under socialism 501. See
also Capital, accumulation of; Profit, rate
of; Finance capital.

Progress: origin of concept, 535; capitalist
reaction against, 536; suppressed by
fascism, 537; and socialism, 540.

Proletarian revolution: contrasted with
bourgeois revolution, 5o8ff; developing
in the United States, 54 iff; character of,
545; increasing awareness of means and
purposes, 346S; conditioning factors of,
548; and petty-bourgeois elements, 564;
and American problems, 57 iff. See also
Labor movement; Struggle for power;
Marxism.

Proletariat: typical class created by capi-
talist production, 489n; as carrier of
socialism, 491; as revolutionary class,
507ff; number and proportion of, 564;
See also Labor; Working class.

Proletariat, dictatorship of, not state capi-
talism, 495n; contrasted with fascism,
539; and economic planning, 504.

Property: rights of, 362; as basis of wealth
and class rule, 365; changing character
of, 395ff; corporate form of, 323;
small independent property destroyed,
5i7ff; social character of, and socialism,
324, 366; and democracy, 521; fascism
defends old relations of, 513. See also
Ownership.

Prosperity: meaning and development of,
24ff; and profit, 63 ff; and high wages,
39; and consumption, 39, 15 iff; agri-
cultural crisis during, 66; and specula-
tion, 179; and unemployment, 22$fi;
and imperialism, 428, 485; prospects of,
40, 42, 204; under capitalist decline,
46off. See also Depression; Business cycle.

Public debts: increase in American, 54;
world total of, 365; as form of parasitic
wealth, 366.

Public expenditures, character of, 366n.

Public utilities, concentration in, 389.

Public works: in the United States, 54;
in Europe, 55; and capital accumula-
tion, 204; limitations of, as factor in
revival and prosperity, 472.

Radio Corporation of America, interlock-
ing directors of, 388, 391.

Radio industry and prosperity, 107; over-
expansion in, 162.

Railroads: basic factor in prosperity after
Civil War, 26ff; post-war expenditures
of, 64; importance of in capital accumu-
lation, 26ff, 271; officers' salaries in, 92;
as factor in export of capital and im-
perialism, 50, 271, 418; government aid
to J 359; concentration and control in,
374n, 389.

Rand, James H., on prosperity, 16.

Rather, Allan W., on technological un-
employment, 234n.

Rationalization: defined, 130; and rate of
profit, 130.

Raw materials: changes in, iii; prices of,
and rate of profit, 132; overproduction
of, 183; and export of capital, 418;
struggle for control of, 437; monopoly,
438. See also Imperialism.

Reconstruction (after Civil War): economic
and political aspects of, 26n, 555; rein-
terpreted because of use of dictatorship,
542.

Reconstruction Finance Corporation: ex-
penditures of, 54; and credit, 190; cre-
ated by President Herbert Hoover, 495.

Reserves, corporate, and dividends, 90.

Revolution: bourgeois and proletarian,
5o6ff; importance of in American de-
velopment, 54iff; causes of, 544; accel-
eration of, 546; influenced by cultural
borrowing and diffusion, 545n. See also
American Revolution; Bourgeoisie; Pro-
letarian revolution; Marxism.

Rhodes, Cecil, on imperialism, 357; on
social imperialism, 420.

Rockefeller, John D., becomes financial
capitalist, 360.

Rockefeller, John D., Jr., on irresponsi-
bility of ownership, 364.

Rogers, Leonard, on NRA, 15.

Roosevelt, President Franklin D., on NRA,
61; and labor leader, 100; on consump-
tion, 147; affirms open door policy in
China, 440; administration of encour-
ages imperialism, 484.

620

Index

Roosevelt, Theodore, and trusts, 36, 3711;
land commission of, condemns land
titles, 361; anticipates NRA, 493.

Rothschilds, capitalist function of, 356.

Salaries, officers': in manufactures, 67, 72,
89; in depression, 90.

Savings: and investment, 73, 188; sources
of, 34611.

Schuman, F. L., on decline of capitalism,
42.

Science: in bourgeois revolution, 262;
technological application of, 265; and
crisis of capitalism, 470, 53 in.

Shays' Rebellion: glorified by Jefferson,
542; an agrarian debtor revolt, 552.

Shell Union Oil and competition, 167, 442.

Slichter, Sumner H., on unemployment,
23 2n; on professional management, 336.

Small-scale industry: rate of profit in, 129;
decline of, 373ff; and competition, 407.
See also Large-scale industry.

Socialism: in United States, before World
War, 36, 53, 556ff; economic control
under, 94; and higher composition of
capital, 138; forms of created by capital-
ism, 335ff, 489; and w^orld planned
economy, 450; proletariat as carrier of,
491; inevitability of, 5055. See also
Communism.

Socialism, reformist: attitude toward state
capitalism, 494; weaknesses of, 510;
dominates pre-war labor movement,
551; abandons revolutionary struggle,
570. See also Proletarian revolution.

Socialist Labor party, contribution to
American movement, 568.

Socialist party, character of, 568.

Soviet Union: no excess capacity in, 138;
and unemployment, 247n; income dis-
tribution in, 32on; and functional man-
agement, 339; expropriates capitalists and
landlords, 362; socialist relations and
industrialization in, 476n, 482n; planned
economy in, 503; and world socialism,
565. See also Bolsheviks.

Soviets and general strikes, 568; and mass
actions, 572.

Speculation: causes and development of,
i7iff; during Civil War, 25; and pros-
perity, 21, 25, 179; distribution of profits
of, 176; and early capitalism, 355; and
finance capital, 174, 412. See also Fi-
nance capital.

Spengler, Oswald, on decline of culture,
45; on property and man as beast of
prey, 362n.

Standard Oil interests: profits, 360; and
industrial capitalism, 374ff; become fi-
nancial oligarchy, 360; after dissolution
of trusts, 380; still dominant, 388; Cu-
ban holdings of, 423; and imperialism,
433.

State capitalism: defined, 493; develop-
ment and objectives of, 4895; and crisis
of capitalism, 11; NRA as form of, 14,
54» 37> 394; and decline of capitalism,
56, 61, 139; profits and wages under,
95ff; and labor, loi; and prices, 187;
and consumption, 195; interlocked with
monopoly capitalism and imperialism,
414, 445; and cyclical recovery, 4625;
contradictions of, 465; and limitation
of output, 482; lowers living standards
and prepares for war, 484; progressive
and reactionary stages of, 493 ; not social-
ism, 495; as form of struggle against
labor, 496; and reforms, 504; and fas-
cism, 511. See also Fascism.

Stevens, Thaddeus, revolutionary enemy
of slavery, 542.

Steward, Ira, on consumption, 149.

Stockholders: multiplication of, 322 ff; and
ownership, 281; number of, 323; and
large-scale industry, 325.

Stock ownership: development and signifi-
cance of, 323ff; class distribution of, 329;
among officers and directors, 335.

Stone, Warren S., on labor banks, 18.

Stretch-out system and exploitation of
labor, 1 61.

Strikes: Homestead, 29, 376; and higher
real wages, 77ff; under NRA, 98, loi;
outlaw, 77; attitude of Carnegie Steel
management, 362; NRA against, 77,
496; militancy of, in i87o's-9o's, 567;
in Seattle and Winnipeg, 568; new up-

Index

621

surge, 566. See also Labor Movement.

Struggle for power: conditioning factors of,
457fT; objectives of, 491; in struggle
against fascism, 511; and ideological
crisis of capitalism, 538; decisive classes
in, 549. See also Marxism; Class strug-
gle; Proletarian revolution.

Surplus population: in earlier and later
stages of industrial revolution, 269^;
development and significance of, 24 iff;
and decline of capitalism, 116; in eco-
nomically backvi^ard countries, 273; in
United States after Civil War, 278; and
farmers, 294; and clerical, technical and
professional workers, 295; as factor in
revolution, 297; and Malthusian law,
475. See also Unemployment; Misery,
increasing.

Surplus value: defined, iii; basic in
capitalist production, 71; and financial
profits, 73; growth of, 83; and wages,
95; relation of to composition of capi-
tal, 117, 143; and rate of profit, ii8ff,
125; and excess capacity, 120; as source
of wealth, 346; and decline of capitalism,
478ff. See also Wages; Profits; Capi-
tal, accumulation of.

Taxation: and profits, 38, 105; of excess
capacity, 140.

Taylorism: raises productivity of labor
without new investment, 282; and man-
agerial employees, 334.

Technical workers: and NRA, 98; growth
of, 281; occupational status of, 298;
and revolution, 570.

Technocrats and technology, 263, 287n.

Technological unemployment: defined,
260; development of, 272, 234; and
productivity of labor, 226fl. See also
Unemployment.

Technology: economics of, 26off; and un-
employment, 26off; limitation of prog-
ress by under capitalist decline, 47off;
and revolution, 570. See also Capitalism;
Productivity of labor.

Trade unions: militancy of before World
War, 36, 556fi; development of in

United States, 553ff ; post-war attack on,
77; and wages, 84; under NRA, 99,
496; petty-bourgeois theory of, 558; and
trade union capitalism, 564; and fascism,
512; decline and resurgence of, 565ff.
See also Labor movement; Industrial
unionism.

Traylor, Melvin A., on business cycle, 16.

True Story Magazine: promotion cam-
paign of, i7n; on consumption, 148.

Trusts: labor attitude toward, 36; and
NRA, 210; development of, 372ff; num-
ber of, 377. See also Concentration;
Combination; Monopoly.

Tugwell, Rexford Guy, on NRA, 14; on
control of business cycle, 20; on con-
sumption and crisis of capitalism, 148,
195; on competition and combination,

373-
Turner, Frederick J., and frontier and sec-
tions in American history, 5i8n.

Unemployment: causes and development of,
225ff, 24 iff; accompaniment of capitalist
development, 27!!; under NRA, 103;
and wages, 106, 116; in Soviet Union,
273; and decrease in production of sur-
plus value, 296; among clerical, tech-
nical, and professional workers, 295;
under capitalist decline, 47 iff. See also
Displacement of labor; Surplus popula-
tion.

Unemployment insurance: proposed re-
forms in, 257; in the United States,
258; limitations of, 258; necessity of
struggle for, 259n.

Unemployment relief, 249ff.

United Corporation, interests of, 389.

United Fruit Company: and American im-
perialism, 361; interlocking directors
of, 391.

United States: relation to world capitalism,
48ff; technological development in,
27off; wealth in, 353ff; inner imperial-
ism in, 421; export of capital of, 422ff;
imperialism of, 423ff; colonial empire
of, 439; new class relations in, 56off.

United States Steel Corporation: formation
of 30> 376; watered stock of, 33; profits

622

Index

of, 12411, 360; rate of profit and excess
capacity of, 163; interlocking directors
of, 391; Cuban interests of, 423; and
imperialism, 433; exploits foreign-born
workers, 558.

Unskilled workers: real wages of, 84; in
early factory system, 266; and industrial
unionism, 566.

Unused capacity, see Excess capacity.

Vanderbilt, Cornelius, on law and power,

362.
Vanderlint, Jacob, on consumption, 149.
Vauclain, S., on prosperity and wages, 78ff.
Venezuela, loans from American bankers,

74; concessions in, 423.
Villard, Oswald Garrison, on NRA, 14.

Wage labor: as basis of capitalist production,
263. See also Labor; Surplus value;
Wages.

Wages: determination of, 76; reduction
in, 77, 86ff; as proportion of social
product, 82; and capitalist development,
86; among union workers, 84; in de-
pression, 89; and profits, 92, 11 iff; in
manufactures, 67; industrial and total,
72; and costs, 95; under NRA, 97, 107;
economists urge reduction in, 105; and
composition of capital, 107; and con-
sumption, 2o6fT; and imperialism, 440;
as proportion of national income, 315;
and foreign investment, 448; under
capitalist decline, 107. See also Labor;
Wages, real.

Wages, policy of high, and new capitalism,
61, 94.

Wages, real: during and after Civil War,
25flf; stationary in prosperity, 34ff; and
accumulation of capital, 56; post-war,
63flF, 77ff; under NRA, 98, 102. See also
Wages.

Waste and capitalist production, 131.

Wealth: development of, under capitalism,
352fif; social character of, 346; class
distribution of, 346ff; in economically
backward countries, 358; parasitic forms

of, 364; and capitalist decline, 365; its
socialization as basis of socialism, 366.
See also Ownership.
Wcidenhammer, R., on rate of profit,

I24n.
Welfare capitalism, costs of, 335; and

suppression of labor, 335.
Wells, David A., on consumption, 149.
Westinghouse Electric and Manufacturing

Company: sidelines of, 162.

White Collar workers: wages of, 97;

unemployment among, 249. See also

Clerical workers; Professional workers.

White, Francis, Assistant Secretary of

State, on loans and State Department,

436.

Whitney, Leon F., on biological basis of

inequality, 524n.
Whitman, Walt, on ideals of American

dream, 516.
Widener, P. A. B., and rights of stock-
holders, 326.
Wiggin, Albert H., on high wages, 87;

salary and bonuses of, 90.
Williams, Arthur, on workers and stock

ownership, 1 8.
Wilson, President Woodrow, on miners*
strike, 78; and Latin- American conces-
sions, 427.
Winkler, Max, on Latin-American bond

defaults, 435n.
Wister, Owen, on Theodore Roosevelt and

J. Picrpont Morgan, 37n.
Women workers, earnings of, 85ff.
Woodlock, Thomas F., on rate of interest,

i4on.
Woods, Arthur, on unemployment relief,

250.
Working class: income and poverty of,
315; stock ownership of, 329; wealth of,
350; number and character of, 56off;
ideological backwardness of, being liqui-
dated, 567. See also Labor; Proletariat;
Labor movement; Proletarian revolution.
World War: and prosperity, 37ff; and
imperialism, 47; as aspect of capitalist
decline, 47; and American prosperity,
67; creates new American millionaires,
362.